March 26, 2019      4 min read

For large corporations or SMEs, correctly managing your inventory stock is imperative to achieving an efficient, sustainable and profitable business.

Inventory control, however, brings with it many issues but with the right tools, some of the common ones are easily managed. Problems include product stockouts that result in lost sales opportunities and unhappy customers and product spoilage or dead inventory stock which will incur unnecessary costs and tie up storage space.

Understanding what causes these inventory control issues is the first step to knowing how they can be prevented, to help improve your overall inventory control.

Spoilage of inventory stock

Perishable inventory stock can rot or spoil if not sold in time, so controlling inventory to prevent spoilage is essential. Perishability is a concern for many industries such as the food and beverage, pharmaceutical, healthcare and cosmetic industries, all of which are affected by the expiration and use-by dates of their products. Spoilage not only costs money but also means you fail to realise a return on your initial investment.

Inventory spoilage and waste is not simply a result of isolated cases of poor inventory control, spoilage is now a global environmental concern. When you consider that in the United States alone, an estimated $200 billion is spent growing, processing, transporting and disposing of food that is never eaten.

Solid inventory control is your front line to preventing spoilage and waste. With the right inventory system, you can improve forecasting, boost efficiency, access real-time inventory data and up-to-date information on the lifecycle of your stock, enabling staff to rotate and manage stock to ensure older products get sold first.

This approach is used in the grocery and FMCG sectors where products with shorter expiry dates are rotated to the front of the shelf. Items that are due to expire are often heavily discounted to clear the inventory stock.

Dead stock issues

Companies generally hold safety stock for strategic reasons. The primary focus is to retain enough quantities of product to meet customer needs. Safety stock works as insurance against potential stockouts, improving fill rates and reducing lead time.

The issue is that carrying inventory stock brings with it the risk of surplus, slow-moving or unsaleable stock and having an expiration date is not the only way for products to go bad.

Dead stock represents a different type of inventory stock that can’t be sold. Such as inventory items that are seen to be dated, out of style or ones that have been just been superseded by a newer model.

Dead stock inventory increases handling costs, incurs higher opportunity costs and reduces overall profitability. By improving inventory control and avoiding the costs incurred through spoilt and dead stock you will save money and improve cashflow.

Preventing inventory stockouts

The goal of inventory management is to match supply with demand — the conundrum is how to balance the risk of excess inventory against the risk of stockouts.

Running out of inventory stock can have ongoing consequences for your business, the damage stockouts create can go far beyond a few lost sales. If you think the customer will simply substitute a similar product when they can’t find the item they want, then your logic is flawed. It is increasingly easy in today’s market for customers to switch to your competitors.

The effort and resources you have invested to attract customers, gain and maintain their loyalty are wasted when you fail to deliver the products they are looking to buy. When existing customers spread bad word of mouth, any future promotional activities become a waste of resources if you are trying to attract new clients who you’ve already lost through that bad word of mouth.

Preventing stockouts requires setting stock level minimums for the number of each item that should always be on-hand in your warehouse. Giving you time to reorder stock when inventory drops below these predetermined levels. Optimal levels will depend on several factors such as predictability of demand, seasonal fluctuations in supply and should always be based on how fast items sell and the time it takes to restock them.

Inventory control software can help a business avoid stockouts by automating activities. Software notifies you when stock is reaching its par level and some systems will even automatically generate purchase orders to replace inventory stock.

Par levels should be checked regularly to ensure they still make good business sense and be adjusted accordingly as needed.

Software helps to prevent inventory control issues

Cloud-based inventory management software improves inventory visibility, offer comprehensive and in-depth real-time information and are easily accessed from any location.

A truly effective inventory control system goes beyond the management of on-hand inventory stock. Automated inventory anticipates demand, triggers stock alerts when stock drops below a certain threshold, prompts automatic re-orders and alerts when items are back in stock. Additionally, an effective system allows you to view available inventory by location and the real-time position of any inventory in transit.

Inventory control software can help businesses to avoid spoilage, obsolete stock and stockouts allowing managers to remain in control over inventory stock and their supply chain.

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