December 7, 2018      3 min read

For small businesses just starting out, inventory management may seem like an unnecessary burden, but it is, in fact, one of the key processes involved in running a successful company. Good inventory control can improve sales, customer satisfaction and the overall productivity of a business, so it is essential that you do it right.

In this article, we look at the true cost of poor inventory control, what it can mean for your sales, the extent to which your customers are satisfied and the overall health of your company.

Cost Number 1: Reduced sales

One of the biggest mistakes a company can make when it comes to inventory control is failing to stock an adequate amount of inventory to align with demand. In this situation, customers may begin to look to competitors if the company cannot provide the items they are looking for, leading to a loss in sales.

Problematically, this can have knock-on effects as well: the customer may provide a negative online review, or the message that your company is ill-prepared may simply spread via word-of-mouth. This will obviously have major consequences for your company’s reputation, and it can reduce your customer base considerably.

One way of stocking the right amount of inventory is to forecast your demand.

Cost number 2: Dissatisfied customers

Another major consequence of poor inventory control is customer dissatisfaction. Imagine again the scenario in which a company has exhausted its supply of a fast-moving item in high demand – a customer may attempt to order this product, only to find out it is out of stock. In the worst-case scenario, the customer may have even gone through with the entire purchasing process, only to be told they will need a refund in replacement of the missing stock.

This type of inventory control can have disastrous consequences for customer satisfaction; the customer will be left feeling frustrated and will likely move on to purchase from a competitor company. This will of course negatively affect your sales, as word gets out that the company has failed to deliver.

Cost Number 3: Obsolete stock

While poor inventory control may lead to inadequate stock levels as discussed above, it can also lead to an excess amount of stock. This occurs when a company fails to order inventory in line with future demand so that demand is lower than expected and the company is left with stock that is unlikely to sell.

This can be a costly mistake to make when managing your inventory – excess stock means that your money is tied up in assets gathering dust on the warehouse shelves, and this, of course, can lead to a massive reduction in profit.

How can you avoid poor inventory control?

An effective way to avoid either of these extremes and the consequences that come with them is to invest in reliable inventory management software. Inventory software will allow you to review previous sales trends in order to differentiate between popular items and slower-moving products, which in turn will give you a better idea of which inventory you should stock up on.

This insight will mea you will be able to order just the right amount of stock in alignment with supply, and avoid either coming up short or holding obsolete inventory.

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