Walmart lost $3 billion in 2013 due to inventory issues that caused repeated stock-outs. Although your business may not be as big as Walmart, mismanaging inventories has the distinct potential to cause catastrophic damage, so it is essential that business owners are able to both identify and rectify such problems to support long-term growth.
Signs of Inventory Mismanagement
The signs of poor inventory management can differ depending on your industry, but there are some pretty universal signs to watch out for:- Very high inventory cost
- Low rates of turnover
- Lots of older stock
- High storage costs
- Human errors in spreadsheet data
- Incorrect or delayed shipping to customers
- Large amounts of obsolete stock
Causes of Poor Inventory Management
Unfortunately, there is rarely one simple cause of this problem. Below are outlined just some of the most common reasons smaller businesses experience poor inventory management.Spreadsheets and Human Errors
For many smaller businesses, a spreadsheet is the master document of all inventory information. A spreadsheet model often appears to be the perfect tool, but it has the potential for human errors to go unnoticed. A study of errors in operational spreadsheets from the Tuck Business School at Dartmouth College found that 15 out of 25 spreadsheets contained a total of 117 errors. While 40% of errors identified were viewed as having a little potential impact on the hypothetical business, seven errors caused losses that varied between $4 million and $110 million.Excessive Stock Pile-Up
A large build-up of stock can have numerous negative consequences. First off, it takes up space, resulting in the introduction of new stock becoming an even more costly endeavor. Large amounts of stock also leave you with a greater potential for human error when stock-taking, creating the potential for further issues down the line. Holding an excessive amount of stock is a detriment to cash flow, limiting the potential for long-term growth and increasing the chances of business failure.Poor Forecasting
Forecasting sale trends, customer buying patterns, and best-selling items can have a tremendous effect on the success of any business. It can be the difference between a warehouse filled with obsolete stock or an asset-rich business taking things to the next level. If you get your forecasting right, you will be able to direct cash away from stock and into expansion.How to Avoid Poor Inventory Management
One of the most effective ways of taking control of your stock is by using inventory management software. This will connect the warehouse with accountancy, retailers, and shipping, all in one place, and free from human error. That means that you don’t need to rely on a model that you or one of your employees have made. If you have an inventory management department, you should be able to cut employee costs and save substantially more than the software solution costs.The negative effects of poor inventory management can seem daunting, which is precisely why there are solutions that make the whole thing much simpler. The importance of inventory management grows proportionally to the value of your stock: if you are dealing with millions of dollars worth of stock, a 1% error can mean a huge loss. If you’re a small business, it is highly recommended that you perfect inventory management to allow better cash flow, leading to more sensible cash allocation and thus more growth. Taking control of your business is easier than you think.
About the Editorial TeamThe Editorial Team of MyBloggerLab consists of a group of Professional Blogger geeks Led by Syed Faizan Ali (Founder of MyBloggerLab).
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