January 21, 2017      3 min read

Inventory management is a critical part of any business’ operations, and as a manager, you need to get things right consistently to avoid potentially far-reaching consequences. What makes things difficult is that because there are so many facets to inventory management, there are many mistakes that can be made, and once this happens it can take a significant amount of time and resources to fix things. It is therefore essential to “get ahead of the game”, more so than many other areas of business management, and a key part of doing so is identifying and avoiding mistakes before they happen. Below is a list of common inventory mistakes to avoid.

Ordering too much inventory

Over-ordering can be crippling because of the range of holding costs you have to pay to keep inventory. Warehouse rent, wages, ventilation, heating, financing and security are all examples. If you are consistently holding more than you need, it may be that your forecasts need adjusting.

Ordering too little inventory

These first two mistakes may appear to just illustrate the obvious: it’s important to forecast accurately to get the right amount of inventory you need. However, under-ordering can sometimes go beyond inaccurate forecasts. It is popular in recent times for firms to choose “lean” inventory management practices, such as “just in time” inventory. However, if you choose such a practice, make sure it is right for your business. You will have to decide whether the increased risk of stock-outs, and the consequential effects on your reputation and customers, is something you are comfortable with.

Inexperienced staff

Inventory is typically one of a business’ largest assets. It’s therefore critical to have staff that are making decisions about this key asset with appropriate experience and training in relation to their respective functions. Finding time and resources for trainings can be irritating, but the consequences of not doing so are much worse.

Primitive systems

The perceived cost savings of basic spreadsheet systems to record and manage inventory may be attractive, but for medium or large businesses, these programs do not scale well. Further, the scope for human error significantly increases as inventory size increases, and while one or two miscounts or similar mistakes may not seem to be a big issue, these can turn into substantial problems when accumulated over time. Spending more money on a specialist inventory management software program will likely be well worth the investment.

Mistakes with internal communication

Inventory management in many organizations means many moving pieces, and many staff involved. It is critical that you have procedures in place that allow the various responsible people, whether they are managers, warehouse operators, logistics coordinators, or accounting staff, to communicate so that this complex process runs efficiently.

Not knowing what customers want

Few would argue against the idea that keeping customers happy is an important part of running a successful business. But it’s hard to do this when you don’t know what they want. It is worth spending time finding out what is important to your customers, or more accurately, what they value most when it comes to getting their products. For example, how important is it for you to constantly have certain items in stock? Is variety important? Does delivering straight to the customer add value? Answers to such questions should help to shape your inventory management practices.

Sticking with unreliable suppliers

If suppliers are unreliable, it may be tempting to stick with them in the hope that they will be better in future, and avoid the hassle of searching for alternatives and negotiating new contracts. However, doing so can be a sure fire way to lose your business money in the long-term. It’s important to at least know what options you have available when it comes to different suppliers, and to keep the suppliers you choose accountable if they do not meet the requirements expected of them.

No backup plan

Despite everything you do to prevent problems with your inventory, they can inevitably still occur, and losses will accumulate if you don’t have plans in place to fix things. It’s crucial to have contingencies for as many potential problems as is feasible. This may mean having alternative suppliers in the event of supply chain problems, safety stock in the case of unexpected demand spikes, or backed up data in the event of computer failure.

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