June 19, 2016      2 min read

In simplistic terms, inventory is described as raw materials, work-in-progress and finished goods. Yet the need to manage inventory is not solely the domain of retail and manufacturing businesses. In reality, inventory management is far more complex and can also include items used for the output of services, such as health providers. Getting your inventory levels right is fundamental to managing business operations, controlling costs and is a good measure of your company’s overall health. You only need to think of two recent cases where certain fast-food giants failed to maintain correct inventory levels and ran out of chips and chicken! Disaster!

Three reasons to get it right

Shortage can be costly and is one example of why you need to maintain correct inventory levels. Let’s take a look at three other reasons to get it right.

  1. Improved productivity
  • Accurate inventory levels mean staff has what they need to get the job done.
  • Having accurate knowledge of your on-hand inventory provides for an improved and more efficient reordering process.
  • Information about the inventory you have, where it’s located and any items on order gives you an opportunity to identify and manage issues as they occur.
  1. Cost Reduction

We mentioned shortage earlier but there are many ways that incorrect inventory levels can lead to higher costs:

  • The capital tied up as inventory could be better spent elsewhere.
  • Excess inventory stocks have the potential to become damaged, lost/stolen or even obsolete. There is also the risk of perishability in some industries, think chicken and chips!
  • Shortages and the need to expedite deliveries, can lead to increased freight and shipping costs.
  • Time wasted spent looking for missing stock or lost productivity waiting on replacement stock.
  1. Customer Service
  • The more accurate your inventory levels are, the better your ability to measure inventory turns. This is important to understand how well customer needs are being met. Are you delivering on what you promise?
  • Stock outs, increased backorders, incomplete orders, orders delivered outside guaranteed delivery dates can all lead to customer dissatisfaction, lost sales and may affect the long-term sustainability of a business.

Maintaining Accurate Records

Inventory is an integral part of most business and necessary for effective day-to-day operations. The importance of correct inventory levels cannot be overstated. There are many reasons to maintain correct inventory levels and every reason will have a cost associated with it, whether it is shortage, productivity or customer service.

Of the many tools available to help maintain correct inventory levels, inventory-tracking software is the most beneficial. It gives you the ability to create location codes and unique identifying numbers. Data is available wherever you are, it is easy to access and easy to update. With inventory tracking software you are less likely to run out of chicken or chips.

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