This article was updated in March 2023 to reflect new industry trends and statistics.
For a small business, using a spreadsheet is a simple, cost-effective solution to managing your inventory, right?
Well, maybe. But maybe not.
Below are 10 major disadvantages of spreadsheet inventory management. Or, 10 reasons to move on from a standard spreadsheet program to more specialized inventory management software.
10 disadvantages of spreadsheet-based inventory management
Spreadsheets are incredibly common in the business world, and for good reason – they make it possible for practically anyone to carry out ad hoc, bespoke analysis. Unfortunately, spreadsheets are often used as a permanent solution rather than a quick fix, and often far beyond their capability.
When you run a lemonade stand every Saturday afternoon, making 15L of lemonade and selling 120 cups at $2 each, it’s fairly easy to track your sales, cost of goods sold, inventory turnover, and other metrics using one or more spreadsheets.
Even then it’s not easy: you have to make sure you correctly record every sale made, any stock lost by accident, and any discounts given.
A diligent person may be able to run a small business like this on Excel, but as soon as things get complex: different products being sold; inventory being sourced from various suppliers; multiple stores or warehouses, it’s unrealistic to expect a standard spreadsheet program to allow you do this, as that is not what they’re designed for.
2. Human error
Using spreadsheets opens your business up to human mistakes.
Even the most skilled office professionals are not 100% accurate, and ask yourself: is even one mistake in every 100 data entries acceptable? Even if only 1% of your data entries are wrong, this could translate into many hundreds or thousands of dollars lost, depending on the error.
To make Excel work in a large business with large volumes of stock flowing in and out, you’d need to have:
- One person (no more) sitting at the loading bay to the warehouse;
- Stopping each order coming in and doing a quick stocktake of the stock coming in;
- Stopping each order leaving the warehouse and doing a quick stocktake of the stock leaving;
- Entering that stock into the Excel spreadsheet; and
- Saving that data and distributing a report every time it changes.
Specialist inventory software is superior in this sense because it automates much of your inventory process, eliminating a large amount of potential for human error.
3. Output flexibility
To compete in a tough marketplace, you have to be able to respond to opportunities when they arise by expanding output or minimize losses by reducing output when times are slow.
This is impossible to do without strong inventory visibility.
Specialized inventory management software will do this because it provides inventory data in real-time, but this is not possible with a simple spreadsheet system.
4. Future planning
If you want to be successful in a competitive marketplace, you need to keep your eyes on the future.
When making forecasts and strategic plans, would you rather be making decisions from tables or charts you have created within your spreadsheets from scratch, or automatically generated results and graphical displays that are specifically designed for inventory management?
To make the best decisions, you need to have the clearest, most accurate, and most relevant information to do so.
Inventory management software allows you to completely integrate your operations, meaning sales staff know what inventory is on hand or still being manufactured, and your suppliers know exactly when they need to start new production runs to meet your orders.
This high level of integration makes thing run much faster.
For example, an order can be placed automatically as soon as a sale is made, whereas comparatively if a spreadsheet program is used there will be delay – you will need to process your information and work out that this is necessary.
6. Customer satisfaction
When you are running a flexible, well planned, and well-integrated operation, the natural result is that you will be keeping your customers happy.
Stock-outs will be minimized, and sales staff will be able to make firm commitments on delivery times, which themselves will also be minimized. This will allow you to solidify and grow your customer base, which is fundamental to the longevity of your business.
When you are able to expand your business to new stores, new cities, and even branch out internationally, it’s normally a positive sign of success.
When using spreadsheet inventory management however, this can be a disaster. While some spreadsheet programs do have some collaborative functions, they are largely poor when it comes to multiple users constantly sharing information.
This deficiency is exacerbated the more users and different types of inputs are required, with synergy likely to be hurt, and a higher chance of errors. Inventory management software excels here because it is designed to accommodate collaboration.
When something within your operations does go wrong, the most important thing is to work out what happened as soon as possible. This is difficult in spreadsheet systems where data is often decentralized, it is hard to locate data, and data isn’t constantly backed-up by users.
9. Susceptible to fraud
Another striking difference between inventory management software and a spreadsheet system is the latter’s lack of controls, which makes such a system vulnerable to fraud.
A typical inventory management software package will allow a manager to control who can use the system, and track which user has done what. This helps prevent crippling events such as spreadsheet manipulation, which has cost some firms millions of dollars in the past.
10. Spreadsheet systems aren’t as cost effective as you may think
As mentioned above, one primary reason a business will go for Excel or another such spreadsheet program is the perceived cost advantage of doing so.
However, with cloud software delivery now possible, today’s inventory management programs are available at a fraction of what they used to cost businesses.
Many providers offer a free trial, which means that trying such programs to work out the true cost-benefit of employing them for your business is more than worthwhile.
Excel spreadsheets vs. inventory software: Why automation wins
Spreadsheets and other manual inventory tracking methods have a number of weaknesses when compared with best-in-class inventory management software. If you are still using spreadsheets to manage your inventory here are five reasons why you need to stop.
Excel is error-prone
The main source of inaccuracy in Excel stems from data entry, as any data has to be manually keyed in. As a result, stock can easily be miscoded and quantities can be incorrectly entered. A careless mouse click or keystroke could result in an operator entering data into the wrong cell, overwriting any information already there.
A second source of inaccuracy is introduced by the ‘formulae‘ that operate on data in the spreadsheet. Small mistakes in a formula will create errors and can be difficult to notice.
A further disadvantage is the time wasted checking for and dealing with errors in Excel spreadsheets.
No real-time inventory information
Specialized inventory management software is designed to keep inventory data updated in real-time as stock levels change.
Far from being updated in real-time, an Excel spreadsheet may not even let you know how old the data is that you’re viewing.
Even with diligent staff, a manual inventory system will never be as up-to-date as a real-time solution. And without diligent staff, a manual inventory system can really hold your business back, through lost sales, held-up production and time-consuming stock takes.
Excel does not support multiple concurrent users
Although some spreadsheet offerings (such as Google Sheets) support multiple users, Excel is more predominant, especially among business users.
However, Excel lacks support for multiple users. Only one user can have the inventory worksheet open at one time, even though multiple members of your team may need to adjust inventory information as part of their work.
This wastes time, increases the risk of error and can hinder buy-in from inventory management skeptics within the business.
Spreadsheets reduce accountability
Excel spreadsheets offer no way of telling who has entered and edited what information. This reduces accountability and makes it difficult to know who to go to when something needs clarifying.
A spreadsheet-based inventory management system promotes stock shrinkage and fraud as staff with dishonest intentions could alter inventory records to hide theft and intentional stock damage.
Excel sheets make it difficult to turn inventory data into business intelligence
Although Excel generally has a good toolkit for business statistics, it lacks specific tools for inventory management.
The fundamental limitation of using Excel for inventory analysis and forecasting is the lack of real-time data. Without the confidence that your inventory information is up-to-date and accurate, it becomes difficult to credibly turn inventory data into business intelligence.