Nearly 81% of consumers experienced an “out-of-stock” situation in the past 12 months, resulting in lost sales for retailers and lots of disappointment for in-store shoppers. Globally, retailers recorded losses of a whopping $1.75 trillion due to mismanaged inventory
We don’t want to be too hyperbolic here, but poor inventory management could cost you your business.
That’s why it’s important to recognize that this kind of fundamental problem would negatively affect your bottom line and business growth long-term.
But how do you know if you’re managing your inventory properly?
Poor Inventory Management Symptoms
Depending on your industry, there are many signs your inventory management is bad and getting worse.
Here are the most obvious symptoms of poor inventory management:
A high cost of inventory
A low rate of inventory turnover
A high amount of obsolete inventory
A high amount of working capital
A high cost of storage
Spreadsheet data-entry errors
Shipping the wrong items to customers
Imbalanced lead times
Of course, there are usually many factors that help produce these negative symptoms, but all of them have a root connection to the way you manage your inventory.
What causes poor inventory management?
Causes of Poor Inventory Management
Spreadsheets and manual inventory tracking
Manual inventory management practices such as using Excel is usually the first tool small-to-medium sized businesses use to manage their inventory. While spreadsheets and the likes work fine in the beginning when you’re a small operation, they can quickly lead to crippling issues.
In the same way, manual inventory tracking and stocktaking can be suitable for small businesses but again become time-consuming and erroneous as your company grows. Not only does this impact your business’s ability to foster growth, but data errors can also have snowballing effects.
For example, there may be a wrong quantity recorded in an SKU. As a result you order 1000 units instead of 100. If this 1000 does not sell, this becomes wasted capital and can have very costly implications for the business.
Large inventory volumes
Large volumes of inventory can lead to management nightmares as they can cut into your profits. Most businesses have 20 to 40% of their working capital tied up in inventory stock. Inventory reduction is difficult to do, but it is essential if you want to go from poor inventory management to great inventory control and management. Here’s how you can reduce your stock.
If you are not using accurate data to identify sales trends, best-selling items, customer behavior and more, you’ll either order too much and experience the problems of excess inventory stock, or order too little and experience stockouts and lost customers. With accurate reports, you can better forecast your customer’s future behavior and order accordingly to meet customer demand.