For inexperienced businesses and their staff, starting to use inventory management can at first feel like you’re trying to juggle a hundred things at once. With such a variety of processes and problems to manage, monitor and work through, the day-to-day operations of even a small business can be fraught with countless chances for mistakes and missteps.
Taking a simple view, inventory management is the managing and controlling of inventory through the application of principles, techniques and technologies. But in real world practice it is much more complicated and far more challenging than such a definition suggests.
Almost every part of a business’ operations are in some way connected to or affected by inventory management. This is especially true when considering the role that inventory management software now plays in a modern, inventory-centric business.
Making and correcting mistakes – whether operational or otherwise – are certainly part of the overall learning process for any new or changing business. Identifying what went wrong, and finding ways to safeguard against it, can be a highly valuable learning curve for both a business and its employees. That being said, there are some types of mistakes and recurring problems that are now so common they can be avoided or guarded against from the start.
Excessive or frequent over and understocking
Perhaps one of the most fundamental and commonly faced problems within inventory management is excessive or frequent over and understocking. It can be catastrophic to both a business’ operational health and its bottom line.
With excessive overstocking comes the danger of tied-up capital and inventory losses due to spoiling or obsolescence. True for all businesses regardless of size – though often most urgent for start-ups with little spare cash – the burden of buying and storing unneeded inventory effectively holds capital hostage, preventing it from being used elsewhere for business growth or product diversification.
Overstocking and having to write off stock that has spoiled or become obsolete has the potential to seriously hurt a business in the wallet and, in the long term, its profitability.
On the other hand, persistent understocking harms a business through the loss of potential sales and revenue, and by eroding customer loyalty. Fostering customer relationships is an essential pursuit for any business. After all, without customers there is no business – and nothing hurts this more than being unable to fill orders when they are required.
Some businesses make the mistake of intentionally running understocked in an attempt to keep costs down, often without any meaningful understanding of the subsequent consequences. While there are techniques such as ‘lean’ inventory practices that dictate how a business runs with a bare minimum of stock, such techniques rely on the business having the right amount to successfully operate and meet demand. Less stock doesn’t necessarily translate to lower costs, especially once you count lost sales as a real and harmful cost.
How to guard against over and understocking
There are a variety of tools and approaches that a business can use to ensure they stay in the sweet spot, holding enough inventory to operate without overstretching their budget. Almost all of them require that the business has the ability to meaningfully monitor and control their inventory, which is exactly where software comes in. With this in mind, let’s take a closer look.
Investing in the right inventory management software
Easily one of the best things a business can do from the start is to choose inventory management software that is right for them. Thankfully, with the rise of new technologies, like cloud computing, there are a number of options available.
If we start from the idea that all businesses wish to operate with the right amount of inventory (neither too much nor too little) then inventory management software is an essential step towards achieving this. With the kind of intuitive automation that good software provides comes consistency, accuracy and the minimization of human error – all factors that are needed to keep the balance right.
With software comes the ability to, not only control but, meaningfully monitor the whole supply chain. And it’s through the use of software that essential data can be collected and reviewed, safety stock requirements set for each item of stock, warehouses and logistics effectively managed and manufacturing processes optimized and automated with accuracy.
Ultimately, every technique that a business will use to better manage their inventory can be (and should be) utilized through an inventory software platform. All of the safe guards that help eliminate over and understocking can be harnessed, optimized and automated through good software.
How do I choose which software is right for me?
The status quo, especially for large businesses, has been to buy on-site software suites, powerful enough to handle complex and diverse supply chains. Previously, this has required businesses to house their infrastructure on-site and employ some kind of IT department to run it. For many businesses, this is still a good way to go as everything is handled on-site and the expertise needed to problem solve or upgrade is in their employ. For many other businesses, cloud computing is offering some great solutions that free them from large initial outlays of capital and the ongoing burden of IT costs and in-house upgrades.
Inventory management solutions that are supplied via Software as a Service (SaaS) are becoming a great way for businesses (especially small or start-ups) to utilize cutting-edge software without needing on-site infrastructure or large IT costs. Most are available for a monthly subscription, creating more financial and practical freedom.
At the end of the day, each business can decide for themselves which software solution is right for them. All that’s needed is some research and a clear idea of what functionality they need.
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.