Understanding the types of inventory risks that may be impacting your business will shed light on the best strategies to mitigate against these risks for your inventory control needs.
Types of inventory risk
As an owner or manager of a business, you need the right products in stock at the right time to be available for your customers. There are different types of inventory risks that threaten every inventory manager. Let’s take a look at the impact of inventory risk on both the supply and demand of inventory stock.
From the reliability of a supplier’s delivery to their agreed lead time, their adherence to the quantity ordered and the spread of the deliveries in terms of days early and days late are all supply impacts of inventory risks.
When a supplier continually delivers early, there is more of a chance of generating excess inventory. The opposite holds true too — when a supplier continually delivers late, the greater the chance of having a stockout.
When a supplier continually delivers more than ordered, there is more of a chance of generating excess inventory. Again, if your supplier continually delivers less than ordered, you have more chance of stocking out.
If a supplier agrees to a lead time of 12 days but sometimes delivers in 18 days and sometimes in 8 days, you swing from having too much inventory stock to stocking out. The wider this gap between early and late deliveries, the bigger the level of uncertainty and risk.
By tracking this data about your suppliers, you can then easily begin to identify problematic suppliers and begin the process of rectifying this.
How well a business is able to forecast demand relates to the demand impacts of inventory risks. While computing forecast accuracy is important, it is even more important to understand the impact any errors here directing decision making.
Inventory control and demand forecasting go hand-in-hand. Over-forecasting demand, by buying more inventory stock than your ability to sell, is more likely to generate excess inventory.
If you under-forecast demand, you end up selling more than you thought. You will run the risk of running out of stock. How well your business does this has a significant impact on your ability to minimise stockouts and reduce holding inventory stock simultaneously.
Mitigating inventory risks
Inventory stock ties up significant financial investment, and for the most successful businesses, inventory control really is key to sustaining cashflow.
Since cashflow is the lifeline of future activities, businesses must invest time and resources into reducing inventory risks.
Cloud inventory management software proves a reliable tool to help businesses like yours mitigate inventory risks and keep track of your inventory stock using real-time information. This not only optimises forecasting but also tracks supplier data for stock coming in.
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.