Inventory management is a perpetual challenge for many businesspeople. Without using inventory management software, keeping track of every moving part can be time consuming, resource intensive and difficult. It can be hard to know where to start, so if your business is looking to get inventory under control, consider these five basic inventory management mistakes.
Carrying Excess Inventory
Many businesses treat ordering costs and inventory costs as one and the same but, in truth, ordering costs are only the start of the total cost of a business’ inventory. Every item of inventory that a business holds in stock must be handled, stored and (preferably) insured. Although these costs do diminish slightly with scale, holding unnecessary reserves of stock will result in higher than necessary inventory carrying costs. Equally, a business’ stock will depreciate over time, and some stock will be lost entirely as the result of damage, loss or theft. Businesses that carry more inventory than they need at any one time will be overexposed to these costs and risks.
It should be obvious to any stock-based business that efficient warehouse design and management is crucial for effective inventory management. A disorganised warehouse is likely to compromise efficiency; if your staff have to search the entire warehouse to find stock, they’re likely to get less done throughout the day (and frustrate customers or staff who are waiting on an item). Prioritised storage, signage and labelling and inventory mapping are all crucial to ensure that stock is easy to find in the warehouse.
Inventory management often feels like walking a tightrope; the most efficient business walks a narrow line between having too much inventory and risking stock outs and missed sales with too little. Although good planning is not a panacea for inventory uncertainty, it can help prevent stock shortages and escalating ordering costs. Forecasting is crucial – businesses should learn from previous years’ inventory performance to predict the impact of seasonality and known events on demand and the supply chain. That said, even the best forecasting is no substitute for team communication; if the sales team is close to landing a major order, the sales manager should be regularly updating the inventory manager so he or she can liaise with suppliers and keep lead times short.
Failure to Prioritise Inventory Management
Inventory management is a major task, especially for businesses with a large number of distinct product lines. Unfortunately, most businesses struggle to set aside the resourcing that is required to manage every item of inventory. In this situation, businesses should prioritise inventory management to ensure that critical classes of inventory are well managed. If high value, high importance inventory (such as inventory that is needed to keep a production line running or meet a key customer order) is not well managed, a business is likely to fail during a period of peak demand. On the other hand, many businesses can survive ad hoc inventory management when it comes to less crucial stock (such as a minor ingredient with many good substitutes and a low ordering cost).
Failure to Automate
If your business is failing to manage high importance inventory, it may be a sign that your business is not using automation to its full potential. Automating inventory management can make it easier to keep on top of repetitive (yet crucial) data maintenance, keep ordering costs and carrying costs in check and allow you to keep track of inventory in real time. Failing to use inventory management software is a key predictor of supply chain and inventory management failure.