January 25, 2017      4 min read

Inventory management is often under appreciated when done well, but it is such a critical aspect of business operations that when things go wrong, there can be far-reaching consequences. The goal of inventory management should be that no mistakes are made (in terms of basic practices at least), and the best way to achieve this is to prevent them from happening in the first place. Below are some of the most common mistakes made when managing inventory, and how to fix them before they turn into serious problems.

Bad forecasting

If you don’t forecast well, you will inevitably end up with too much or too little inventory, both of which cause problems. If you over forecast and end up overstocked, you will pay through the nose for holding costs, which can cripple your bottom line very quickly. On the other hand, if you under forecast and end up with shortages, you risk customers going elsewhere – and they may not come back. The worst type of forecasting is not forecast at all. Do this and you will likely get a combination of the above in a more extreme and unpredictable form.

Fix: the best way to forecast inventory is to use inventory management software that is specially designed for this. You can forecast without it (where you may use historic sales as a base), but be sure to consider what changes to the market could make this year’s demand different from past data. You’ll also need to take into account whether the industry you operate is subject to seasonal demand patterns.

Inaccurate tracking

There are numerous opportunities for inventory miscounts such as: during receiving, during order fulfillment and from theft. Improperly tracking inventory will mean that such instances aren’t picked up, giving you inaccurate inventory numbers, which can be dangerous. If you cannot trust your inventory data, it compromises key decisions such as purchasing that are based on this data.

Fix: if your business holds anything more than a small amount of inventory, it is best to use barcode tracking – this will help eliminate data entry errors. As with forecasting, a specialist inventory management software program is helpful. These programs give superior visibility over your inventory, allowing you to track each item to a specific location in real-time.

Employees aren’t qualified to manage inventory

Inventory is typically one of the largest assets for a business, so treat it accordingly, with high importance. Employing people who lack the requisite qualification or training to manage this key asset is naturally a recipe for disaster, yet businesses can be reluctant to set aside time and money to hire specialists or run training programs.

Fix: hire people with a solid background in inventory. Give them the training they need. And when they have all they need at their disposal, hold them accountable if things go wrong.

Lack of priorities

It’s not uncommon for a business to have about 80% of its demand generated by 20% of its items. Depending on the nature of your business, keeping track of all the details for each inventory item all of the time may be too resource-intensive. Spreading resources too thinly, or putting them in the wrong place is going to prove costly.

Fix: if certain products generate more demand and sales than others, be sure to put time and effort into managing the items first before moving to the others. This means spending more time fine-tuning forecasts, reviewing in-stock positions, and reordering more frequently for these key items.

Use of spreadsheets

It’s not a mistake per se to use spreadsheet programs to record and manage inventory, but such programs do not scale well, and once your inventory levels reach a certain size, the scope for problems becomes wide. Spreadsheets may be cost effective for a small business, but they are not efficient at recording constantly changing amounts of different products; they do not give strong visibility over inventory; they make troubleshooting difficult; and they can be susceptible to fraud.

Fix: a true upgrade to using spreadsheets is employing specialist inventory management software. This software is more expensive than a simple spreadsheet program, but it is a real step up in terms of the capabilities for managing your inventory. As these programs are now available at a fraction of what they once cost, you will likely find it is well worth the investment.

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