4 Reasons Why Accurate Inventory Is Critical For Success

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Knowing your business’ inventory is critical for success. Here are four reasons why access to up-to-date, accurate inventory will keep you trading and protect your bottom line.

Avoid understocking

Companies that are unable to rapidly query inventory levels often find themselves short on stock – and missing out on sales. If a business’ inventory strategy involves estimating inventory levels based on periodic stock counts, the business will struggle with unexplained variances between the data in the system and the stock in the warehouse.

On the other hand, a business which tracks individual stock units in real-time is able to identify when a particular supply is running low and pre-emptively order more. Reordering can even be automated using minimum stock levels or carried out remotely using cloud-based inventory management software.

Understocking has an immediate impact on your business; a missed sale equates to lost income without a corresponding reduction in cost. But the cost of a missed sale extends beyond the immediate, financial impact. Regularly running out of stock signals unreliability, and an inability to quickly meet customer needs. This translates to loss of customer support and, ultimately, to a permanent loss of revenue. Nothing could be more harmful to a growing business.a

Avoid overstocking

Equally, accurate inventory is valuable because it prevents overstocking. Although, on its face, overstocking does not seem like as much of an issue as understocking, persistently having too much inventory can seriously hamper your business’ performance.

A growing business typically needs all the capital it can get, so tying up money in excess stock can limit opportunities for growth by investing elsewhere in the business. Moreover, the cost of inventory is not limited to the purchase price – storing, securing, handling and insuring unnecessary stock can be a big drain on a business’ resources.

As with understocking, the cost of overstocking is not solely financial; a business that regularly clears excess stock in fire sales risks cheapening its brand. Higher value customers may be put off by regular discounting, while other customers may expect ongoing discounting and put off purchases until a sale is on.

Accurate inventory is crucial to avoiding carrying too much inventory. Because managers can see how much of any particular item is in stock, it becomes easier to identify products that are being procured or manufactured faster than they are being sold. Inventory management software can be used to set maximum stock limits which, in conjunction with real-time inventory tracking, can ensure that procurement slows to match sales.

Prevent loss

When a business is in its infancy, loss and stock shrinkage may be a minimal problem. But as the size of an operation grows, so to does the risk posed by theft, fraud, staff carelessness and damage. Without real-time inventory control, it can be difficult to keep tabs on stock shrinkage – leading to an unpleasant surprise at stock take time. Accurate inventory doesn’t eliminate the risk, but makes it easier to monitor and reduce shrinkage.

Understand trends with accurate data

Although periodic stocktakes and intuition can be used to predict some inventory trends, they are no match for actual data. Keeping real-time, always accurate inventory records can help managers identify subtle inventory trends that would otherwise be missed.

For example, a quarterly stocktake might identify that a particular product sells well over summer as a whole, but perpetually captured data may be able to identify particular days or events that lead to spikes in demand.


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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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