Why accurate inventory management matters

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There is nowhere to hide when your business runs into inventory surplus or shortages, or overall lack of accurate inventory data. The bottom line will take a beating, customers will turn away from you and the overall productivity of your operations will grind to a fraction of what they should be in terms of profitability and efficiency.

Keeping your inventory processes running optimally hinges on one baseline factor – how well you manage your data. Every process in the flow of inventory – from forecasting and purchasing through to storage, sale and shipping – is driven by data. Failing to gather the essential data related to your inventory levels in a time-critical manner will lead your inventory managers into a minefield of dangerous and costly scenarios.

Customers demand stellar service, pure and simple. If for any reason you are unable to provide them what they need when they need it, they will take their business over to your competitors. Customer loyalty does exist, this much is true, however it is rare to find a customer willing to put up with constant delays in receiving their orders due to stock outs thanks to your purchasing department relying on inaccurate and out of date data.

It does not matter how sharp and on the ball your personnel are. If they are working off inaccurate data every forecast they make and every purchase order placed is going to miss the mark. The result will lead your business down one of two roads – neither of them ending in a happy place.

Two outcomes – neither of them good

When inventory is inaccurate one of two outcomes is inevitable – stock outs or being saddled with a costly overstock problem. Stock outs occur when your business does not have inventory on stock to meet customer demand. This results in lost sales, customer dissatisfaction and putting your management team into a reactive tailspin. When your management team have to dedicate their time and attention to putting out fires fuelled by poor data-driven decisions, they are not able to plan effectively.

Overstocking can be just as devastating on your inventory flow and ultimately upon profitability. When inaccurate data is sourced to inform purchase orders, your purchasing department can end up ordering in excess inventory which is already sufficient, or worse yet that is no longer demanded by customers. Allowing slow moving, unnecessary stock to pile up in storage raises handling costs (warehouse space is expensive), and constricts the flow of working capital.

Vulnerable to areas of loss

A business unable to direct its cash flow as needed to purchase stock that is actually required and capitalize on advantageous deals and discounts on raw materials or goods is leaving itself vulnerable to lost opportunities. Furthermore, holding on to excess inventory that is not saleable opens your business up to the risk of sudden drops in the market value of those commodities. If something should happen to bring down the retail price of goods you paid premium rates for, you are left in the unenviable position of holding stock that will have to be sold at a loss.

Obsolescence, damage due to handling, and even theft are all factors that a business with an overstock problem can be faced with. As with under stock, carrying too much unnecessary inventory pulls the time, resources and focus of your process managers away from optimizing your business growth and meeting customer service targets and instead has them reacting to crisis after crisis.

You can have the best inventory management team on the planet, but feed them data that is out of date, out of sync and out of touch with the real time flow of inventory through your purchasing, storage, sales and distribution channels, and you will manifest areas of loss that could potentially cripple your business.

The solution is simple – accurate live data

Of course, managers who are aware that every challenge and every area of weakness carries with it an opportunity will be quick to note that, just as poor data processes and management will result in decreased profitability, productivity and efficiency, well managed data will boost these three key areas.

The solution lies in providing real-time, pinpoint accuracy on inventory at every stage in the flow of goods through your business to the customer. All departments – purchasing, warehousing and sales – need to be reading from the same page and that page needs to contain information that contains ‘live data’. This level of integration and accessibility can only be achieved by the installation of a cloud based inventory management software solution that can be tailored to meet the specific needs and complexity of your business.

A good inventory management software solution should be able to provide real-time perpetual inventory functionality. This means that inventory is updated on a continuous basis, ensuring that all data is always accurate and up to date. When your inventory is managed in this way, and the data is instantly accessible from any smart device anywhere on the planet, then your process management team can look to the future with confidence and actually do what they are there to do – drive your business forward.

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Melanie - Unleashed Software

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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