Inventory management makes it easier for your team to monitor stock, schedule orders, identify profitable items in your portfolio, and determine seasonal sales trends just to name a few benefits. If this aspect of your business is running efficiently, you’ll save more money and generate more income for your business. However, you’ll still encounter problems that have a negative effect on your company’s bottom line regardless of the size of your business. Knowing these problems enables you to identify the solutions you need to not only solve them, but also avoid them.
These are some of the challenges of inventory management you need to identify.
You’ll need real-time and updated inventory data so that you can schedule orders appropriately and manage stocks. Inaccurate data may cause overstocking or low supply of a high demand product. Both situations result in higher costs that reduce profit and constrict cash flow. It also creates a bad impression on customers who often see that a product they want is often sold out. Invest in software to simplify the process and monitoring of inventory data. This enables you to keep information updated whenever you receive or move goods.
One of the challenges of inventory management is inconsistent monitoring. Some businesses track goods in their inventory annually or sporadically throughout the year. This approach makes it difficult to keep track of best-selling products, poor performing ones, and trends in customer demand. It also has a negative effect on scheduling orders. Your team might be unaware of shortages or sold-out popular items on your website or store.
Complicated and Manual Processes
Complicated and manual processes may be the cause of inefficient inventory management. These are time-consuming and error prone. Your team might spend a significant amount of their work hours encoding and looking for data across multiple spreadsheets. Fatigue and/or lack of experience will play a role in inconsistent stock figures and imprecise data. These may lead to disastrous results such as overstocked slow-moving products or shortages of in demand items. This also has a negative effect on customer perception, brand image, and your company’s bottom line. Consider investing in technology and tools to avoid these problems and improve your inventory management. Cloud-based software provides you with many benefits such as accessibility and security.
Storage Space Availability
As your company grows, you’ll need a larger storage space or a facility of your own. The storage space you have determines the number of goods you can store to meet the demand of your customers. A space that’s too small may mean you frequently have a low supply of items that customers want. Too big may result in overstocking. In both cases, you’ll lose potential revenue. This is when you should analyze your inventory data. An analysis provides you with insights about fast-selling and slow-moving products, and seasonal trends. Once you gain insights from the data you collected, you can look for a storage facility that meets customer demand.
Loss of Inventory
Companies may experience loss of inventory for a variety of reasons such as theft, damage, spoilage, and negligence. Inefficient monitoring and encoding may result in inconsistencies in your data. You need data accuracy to determine the main causes of inventory loss and a consistent way to monitor all the items in your storage space. Doing so enables you to have real-time updates and schedule orders to maintain necessary inventory levels.
Poor Planning and Scheduling
One of the challenges of inventory management is poor scheduling and planning. The latter can either have a positive or negative effect on your stock. If you schedule orders properly, you’ll always have enough items for your customers. Poor scheduling leads to overstocking or low supply. You’ll need to review inventory data to determine which items you should order more frequently. Historical data allows you to identify the months when customer demand is high. Data also enables you to determine which items take the most time to move, the best-selling ones, and the in-between products. Knowing these figures allows you to schedule orders before stock runs low.
Lack of Communication and Coordination
Inventory management requires streamlined communication and coordination between businesses, their suppliers, and delivery service partners. Miscommunication and poor coordination on any point of the process may cause delays in deliveries to customers and inconsistent inventory levels. This creates a chaotic situation wherein your business not only loses money, but also ruins your reputation. Always communicate with your business partners and coordinate with them. Streamline the ordering, scheduling, and receiving process to eliminate mistakes. Designate teams to handle each step of the process. Establish clear policies on sharing information, schedules, orders, and receiving stocks.
Overstocking of Goods
Some businesses overstock goods because they don’t use historical data to identify trends and customer demand. Overstocking incurs additional fees for storage, spoilage, loss, damage, and other problems. These reduce your profits and may force you to sell products at a substantial discount or at a loss just to get some money back. Overstocking may also be the result of a poor ordering schedule. You order too many slow-moving items that have low demand.
Trends in Customer Demand
It’s difficult to predict customer demand and shifts in the market. You might store too many items that are no longer in demand or have too little to satiate customer needs. This is when historical data plays an important role in inventory management. This enables you to identify possible shifts in trends and adjust to them. You’ll be able to order the appropriate number of products to match seasonal changes.
Complex Supply Chain
One of the challenges of inventory management is a complex supply chain. You might be sourcing from too many suppliers. This makes receiving and monitoring the goods you ordered complicated. You’ll need multiple data sets for similar products. If one of them encounters problems, this cascades to your business. Reduce your number of suppliers to simplify your supply chain.
Learning about these challenges allows you to plan for them or at least reduce their negative effects on your business. The size of your company doesn’t matter. Inventory management is an important aspect of your growing business which you shouldn’t ignore. If you need assistance with updating your accounting books while you improve inventory management, you can partner with us. We at Robookkeeper can provide you with accounting and bookkeeping expertise. Our team offers first-rate virtual bookkeeping services.