Five Typical Inventory Management Mistakes You Should Avoid

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Inventory can pose a challenge for any business, let alone a business without a dedicated inventory management function. While some aspects of inventory management can be challenging to master, the basics are easy to get right. In this article, we discuss some of the most common inventory mistakes for growing businesses to avoid.

Carrying too much or too little stock

The central point of inventory management is to optimize inventory levels to enhance business performance. Carrying some inventory is important – the business is likely to need some stock to trade and may find it helpful to carry some stock as a buffer against unforeseen events.

On the other hand, holding very large reserves of stock can be incredibly costly and may jeopardize profit margins. Carrying excess stock also increases a business’ vulnerability to shrinkage and obsolescence. Carrying excess stock is understandable – if your business is struggling with stock-outs, a large reserve of safety stock may be attractive. Unfortunately, the burden of safety stock may have a similarly damaging impact on your business in the long run.

Failing to address the underlying causes of inventory problems

Instead of carrying excess safety stock, it is crucial to address the root causes of poor inventory performance. Experienced inventory managers will look to identify internal and external factors. Internally, poor inventory performance can be caused by inadequate systems or by staff failures. Externally, unreliable supply chains are one of the most common issues. Reliable inventory management depends on suppliers having robust processes in place to meet customer obligations.

Not using data

Modern inventory management systems – particularly perpetual, cloud-based solutions – rely on extensive sets of data to track inventory and to identify and solve performance issues. A business therefore makes a significant mistake if it fails to accurately record inventory data. Weaknesses in inventory records can leave a business vulnerable to stock-outs, business disruption and even employee fraud. For this reason, it is recommended that businesses regularly audit data and consider using tools such as barcode or RFID tracking.

Poor forecasting

Accurate forecasting is important to ensure that inventory remains aligned with demand. Although forecasting is not an exact science, it is possible to reasonably approximate demand and inventory pressures for upcoming sales cycles. Forecasting becomes difficult and prone to inaccuracy where a business fails to use appropriate data and tools. On the other hand, a business that implements a comprehensive inventory management software solution will have all the tools to collect and interpret inventory data.

Using spreadsheets and paper to record inventory management

Many businesses still record inventory movements on paper to be entered into spreadsheets at a later date. Spreadsheet use is understandable, especially for smaller businesses that often take a do-it-yourself approach to most business tasks.

That said, spreadsheets are a poor option for inventory management. Not only is recording inventory changes on paper and then on a spreadsheet inefficient, it also increases the risk of data entry error. Unless paper-based records are immediately entered into the system, inventory data becomes inaccurate and subject to a time delay. As specialised inventory management software has become much more affordable, sticking with Excel spreadsheets is (in most cases) a mistake.

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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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