Inventory control is an investment – not an expense

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To survive and thrive a business needs cash. Without sufficient cash flow to fund purchasing, drive marketing and sales, invest in new equipment and cover operating costs a business cannot operate. According to Bloomberg, eight out of every 10 start-ups end in failure. One of the leading causes of business failure in new businesses is poor inventory control, yet many start-ups and small business owners alike continue to regard inventory management software as an expense and not an essential investment.

Controlling inventory effectively and efficiently is important to all businesses, but to the small business and start-up it is absolutely essential. This is because poorly managed inventory causes business loss on multiple fronts, and if left undetected and unchecked will escalate operating costs significantly, as well as drain off vital cash flow.

Control is everything when it comes to managing the flow of inventory to, within, and from your business. Any business that hopes to operate optimally must be able to meet its customer service targets, capitalize on opportunities, manage risk effectively, forecast demand with precision, and scale successfully in a dynamic and highly competitive marketplace. In order to do this a business must have the ability to track, trace and account for every item of inventory in its supply chain in real-time. Here’s why:

A business must maintain accurate inventory levels

There is no substitute for accurate knowledge
– Lee Iacocca

A small business, or one just starting out, cannot afford to allow its inventory levels to get out of alignment. A business operating an effective inventory system should always have enough inventory to fulfill customer service targets and carry it through unexpected fluctuations in demand, without actually over-compensating and holding too much inventory, or too much of the wrong inventory.

Don’t carry enough inventory and safety stock and the revenue stream will soon dry up as lost sales occur ever more frequently, and customers head elsewhere to get what they need. Carry too much inventory and the business will be crippled with soaring operating costs, rising incidences of obsolescence and a potentially fatal stranglehold being placed on cash flow.

It all comes down to the data

Data is what drives all decisions attributed to inventory – how much do you have? Where is it stored? How much is on order? How much is dedicated to current customer orders? How much needs to be ordered to meet future demand? And so on. The answers to each of these questions lies in the data, and if that data is out of sync with the real-time situation on the ground, the decisions on what to buy, when to buy it, and how much to buy will be off too.

Easy and instant access to inventory data is also essential for analyzing inventory flow and patterns in previous seasons, as well as forecasting demand accurately for the future. Attempting to do so based off spreadsheets is hugely time-consuming, error-prone, and usually not very accurate – yet it is more often than not the solution many small business owners adopt.

Inventory management software – costly expense or lucrative investment?

For many businesses, particularly those that consider themselves too small or too cash strapped to warrant an integrated inventory management software solution, the decision to utilize a manual spreadsheet-based system like Excel is an all too easy and enticing one to make. It is easy to understand why so many new and small businesses fall for the shortsighted approach to deploying a proper inventory management solution like Unleashed.

First, many small businesses consider their inventory demands too small to warrant the investment in a sophisticated and ‘expensive’ inventory management software solution. Manual data entry into an Excel spreadsheet, combined with routine seasonal or periodical physical stock takes, are considered to be sufficient to keep a handle on inventory.

Second, as mentioned earlier, to a start-up or a small business, working capital is what drives the business forward, and allows it to survive and thrive in a competitive market space. With this being the case, most businesses who opt for a manual inventory control system do so because it does not require a sizeable commitment of working capital up front.

The misconception that could end up costing millions

This highlights one of the largest misconceptions surrounding inventory control solutions, and how this misconception is putting businesses on the back foot from the get go. There is a perception amongst a large number of businesses that inventory management systems are hugely expensive, and are really only warranted for companies operating complex and sizeable supply chains. The result is that many start-ups and small businesses steer clear of developing an inventory management strategy that involves a dedicated inventory control software system. Sadly, such businesses fall into the all too familiar trap of thinking short-term, only to fail long-term.

Closing the gap – Software-as-a-Service (SaaS)

The fact of the matter is that the gap between the so-called ‘haves’ and ‘have-nots’ in the business world when it comes to affording powerful inventory management software has closed. Software-as-a-Service (SaaS) cloud-based inventory management software solutions, such as Unleashed, are now enabling even small businesses and start-ups to afford a sophisticated – yet simple to use – low barrier-to-entry, powerful inventory management solution.

The goal for any business is to succeed. For businesses operating a supply chain, the control of inventory will play a crucial role in whether that business is successful or not. Inventory management software provides businesses the ability to track, trace, and account for inventory in real-time, and to organize and interact with that data across departments, from anywhere, at any time. This optimizes efficiency, significantly lowers operating costs, and boosts profitability – the hallmarks of a successful business.

Ultimately, the business that approaches its inventory management system as an investment rather than as starting or operating expense will be the one most likely to bypass the 80 percent of businesses who fall by the wayside on the road to business growth and success.

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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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