How poor inventory management could collapse your wholesale business

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Inventory management is one of the most important aspects a wholesale business needs to get right if it hopes to thrive in an increasingly competitive marketplace.

The effect inventory exerts on a business is tremendous – both in a positive and negative way. Inventory control is very much a double-edged sword – expertly managed and controlled, it has the power to boost profitability and slice away costs. But if a supply chain falls prey to inefficiency, inaccuracy and mismanagement, inventory has the ability to hack into the bottom line with devastating effect and sever the most important artery of any business – cash flow.

Wholesale businesses in particular are vulnerable to the kinds of losses that mismanaged inventory can cause in a business. This is because wholesalers typically have many more moving parts in their supply chains – from an intricate network of global suppliers and the logistics challenges that raises, to larger and more numerous warehouses and storage, fulfilment and distribution facilities.

It is essential that any wholesaler, regardless of size or complexity, have the ability to accurately track, trace and account for every item of inventory moving through its supply chain from source to sales completion and delivery to the customer. When wholesalers opt to rely on outdated and unreliable inventory management systems like spreadsheets and annual stocktakes they put themselves in a position of unnecessary and potentially catastrophic risk.

Once process managers are unable to work off real-time, accurate inventory data the stage is set for error after error to occur. From flawed cycle and demand forecasting to purchasing, warehousing and meeting customer service targets, no node in the supply chain is left unaffected by inventory-related errors.

As soon as an inventory management system falls out of alignment with the situation on the ground, process managers are bound to start making costly mistakes. Inaccurate inventory levels lead to one of two unwanted outcomes for the unwary business:

  1. Overstock

Overstock is an issue that erodes the bottom line, contributes to greater inefficiency and an increasingly burdened supply chain. When purchase orders are placed based off inaccurate data stating that inventory levels are lower than is actually the case, surplus inventory enters the supply chain.

Any inventory on stock raises the costs to the business in a number of ways – from storage and handling costs, labor, insurance and transport to damage of goods, tampering, theft and obsolescence. With overstock, these areas of loss are magnified.

A further and more pressing concern is the way that surplus inventory restricts cash flow. Money that is tied up in unneeded and unnecessary inventory would be put to far better use in other areas of the business that would reap a higher and more immediate ROI.

  1. Under stock

When inventory levels are inaccurately reported, purchasing can be affected in such a way that in-demand inventory is not ordered into inventory on time, or at all. This places the business in the unenviable position of being unable to fulfill its customer service targets.

As well as lost revenue through missed sales, both the customer base and reputation of the business can be impacted negatively. The responsibility of a wholesaler to its retail customers is a big one. One missed shipment or delivery; one stock out at a crucial time for retailers not only negatively impacts the wholesaler, but more importantly, puts its retail customers in a dangerous place. For example it can affect their ability to meet sales targets and generate the revenue they need to remain relevant as well as operational, particularly in peak seasons like Christmas.

These kinds of errors, caused directly by poor inventory management technology, strategies and practices, are what can cause a wholesale business to lose customers for life. If the errors in the supply chain are left undetected and unchecked, then it could very well drive the business into bankruptcy.

The solution – smarter software, supply chain integration, remote access and control.

The bottom line is that a wholesale business, or any business for that matter, must ensure that it is operating at peak efficiency and as profitable as possible with enough capacity to scale and grow in a dynamic and increasingly competitive marketplace.

Cloud-based inventory management software solutions, particularly SaaS (Software as a Service) solutions, ensure that a business has absolute transparency over its supply chain. Each node in the supply chain is integrated with highly customizable software that ensures inventory levels are accurate right down the very last widget.

When process managers are able to track, trace and account for every item of inventory in the supply chain in real-time, from virtually anywhere with a Wi-Fi connection, the management team can shift from a reactive, regressive management approach to a highly proactive one. Decisions will be data-driven, communication clear and quick and inventory maintained at optimal levels.

The wholesale business that exerts effective control over its inventory management through implantation of smart and powerful inventory management software can look to capitalize on significantly lower operating costs, maximized profitability and the capacity to meet its customer service targets with confidence.

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Melanie - Unleashed Software
Melanie

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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