Although inventory management can pose some difficult challenges for growing businesses, getting the basics right is generally as simple as avoiding some common, critical mistakes. Inventory is typically one of a business’ biggest assets, and is usually central to a business’ operations. Bad habits can break a business so let’s look at some of the most acute risks and how to address them.
Failing to Manage Supply
Having enough inventory in stock is of paramount importance. If you’re in retail, running out of stock can result in thousands of pounds of missed sales and disappointed customers. Disappointed customers are less likely to return (let alone recommend your business to others), hurting the business’ long term growth prospects. If you’re in the manufacturing space, stock outs can shut down a production line, or even the entire factory floor. In that case, revenue and client confidence takes a major hit, while staff and plant costs continue to add up.
Managing supply is primarily about accurate forecasting and good supply chain management. Failing to forecast, or forecasting using an unreliable methodology, places your business at risk of unpredictable inventory shortages and spikes. Although any forecast will involve some level of uncertainty, some methods are more robust than others. Simple forecast methods are often poorly placed to handle multi-variable forecasts, and can make it difficult to analyse historic sales data. Consider whether your business would be best to use online inventory management software to produce reliable and easy to understand forecasts.
Holding Onto Excess Inventory
It can be tempting to hold a significant amount of safety stock, either to compensate for unreliable suppliers or supply chains, or to guard against unseasonal spikes in demand. Although holding surplus inventory is appealing in principle, the reality is that this habit ties up a significant amount of capital that could be better spent elsewhere (such as on growing the business). In particular, costs such as storage, insurance and stock shrinkage quickly mount up.
Tolerating some level of risk is essential in business. Although stockouts can often be easily prevented through good inventory management, the occasional shortage is virtually inevitable and the cost to eliminate this risk altogether is hard to justify. This bad habit is rare among successful managers and business owners.
Failing to Tidy the Warehouse
Although it sounds banal, keeping your business’ stock room or warehouse tidy can have an outsized impact on productivity, particularly in relation to inventory management. Failing to take a little time each month to clear the area, return stock to its assigned location and review the layout can be a costly mistake.
Using Excel for Online Inventory Management
While UK businesses have relied on spreadsheets as a tool for business analysis since the early 1980s, their days of being the best tool to manage a business’ inventory operations have now passed. Many businesses consider that spreadsheets are a cost effective way to manage inventory when, in reality, they are slower to use, inaccurate, do not support multiple users and do not allow for real-time inventory tracking. If you are still in the habit of managing stock in Excel, it may be best to opt for specialised tools such as online inventory management software.
Failing to Track Inventory in Real-Time
Traditionally, businesses carried out regular stock takes to know how much of each item they had in stock. More recently, many businesses have been able to use online inventory management software to keep track of transactions and inventory movements in real-time. Manually carrying out stock takes is a detrimental habit over time as your business has less information available to make key decisions, particularly where those decisions must be made immediately.