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What am I doing Wrong with Inventory Management?

Inventory Management is the process of ordering, storing and using the entire stocks of business from raw-material to stock-in-process to finished-goods. In fact, inventory management is a vast subject starting from tracking of inventory from manufacturers to warehouses and from warehouses to the point of sale.

Issues in Inventory Management

The goal of inventory management is to ensure the availability of the right inventory at the right place and at the right time. The important aspect of the inventory management system is to have proper inventory visibility, knowing when, where and how much to store stock. All this is needed to guarantee fulfilment of customer orders, reducing shipment time and minimizing stock-outs, oversells and customer returns.

  • There should be a right balance of inventory, neither too little nor too large.
  • Too little inventory can lead to stock-outs, customer loss and even business loss in the long run, too large inventory can have disadvantages like excessive carrying cost, risk of spoilage, theft, damage and obsolescence.
  • Non-availability of such a system can lead to poor stock management, which can cost you time, money, inefficient practices, high cost of inventory, stock-outs, overstock, wrong-picks and even down-sizing/ business closure.

It is therefore essential to keep track of poor inventory symptoms to ensure timely correction thereof. It is most important to have proper inventory management techniques in place. 

Symptoms of Poor Inventory Management

  1. Excessive stock inventory or shortfall in inventory.
  2. High inventory cost/ frequent stock-outs.
  3. Slow inventory turnover.
  4. Piling up of obsolete stock.
  5. High storage cost
  6. Errors in data entry/ spreadsheets.
  7. Wrong picks and packs.
  8. Longer shipping time.
  9. Loss of customers/ lower repeat orders.
  10. Lead time mismanagement, etc.
  11. Reduction in bottom-line.

Causes of Poor Inventory Management

  1. Missing/ Creating Wrong Data Entries manually or committing an error in preparing the spreadsheet. Both these methods are usually followed for inventory management. These are ok; so long the business is small. As the business grows, the manual as well as the spreadsheet excel systems become inadequate and error-prone.
  2. Excessive Inventory: Adds to high storage and insurance cost, as also to obsolescence, thereby eating into the profits of the business.
  3. Inaccurate Demand Forecasting: Due to non-availability of reports about sales trends, best-selling products and customer behaviour, ordering the right quantity of stocks at the right time will not happen for future business needs, resulting in excessive inventory or stock-outs.
  4. Non-Checking/ Non-Reconciliation of Inventory periodically: not knowing the quantity of stocks at hand, will affect correct reordering.
  5. Improper Warehouse Management: A messy warehouse with disorganized stock inventory can lead to incorrect inventory forecasting, resulting in too much/too little/ dead products. Such errors will cost you money/ customer loss/wasted labour-time for correcting such mistakes later, etc.
  6. Large Inventory: gives rise to excessive carrying cost/ inefficient inventory management. It is important to reduce inventory for efficient handling thereof.

Example of Poor Inventory Management System

The major consumer goods multinational company ‘Walmart’ faced an ‘out-of-stock’ situation, causing a huge loss of $3 billion, a few years ago. At that time, their inventory was growing faster than their sales, leading to unproductive inventory. Despite heavy inventory, their out-of-stocks went up. And customers don’t have time to wait. This happened due to inadequate technology. Even after the company became mindful about the situation, it took them months to correct it, as stocks are procured from all over the world.

Inventory Control Techniques

  1. Optimizing Inventory cost by maintaining economic order quantity(EOQ)
  2. Properly analysing Minimum order Quantity (MOQ): suppliers often give discounts for purchasing MOQ. But if there are not enough buyers for that much quantity, availing discounts to add to non-moving inventory will not serve any purpose.
  3. ABC analysis: is the process to classify stocks in 3 categories- A for fast-moving stocks needing quicker replacement, B for medium moving stocks needing periodic replacement and c for non-moving/ dead stock. This will help in prioritising stocks for inventory checking and reordering purposes.
  4. For Minimising Inventory, Just-in-time inventory may be applied if stock availability is in the vicinity. 
  5. Maintaining product-wise safety level inventory – A certain level of safety stock is maintained to prevent stock-outs.
  6. LIFO/FIFO – last-in-first-out or first-in-first-out system to be adopted depending upon the business requirement.
  7. Reorder Point: is higher than the safety-stock-level for each product as per its sale cycle.
  8. Batch Tracking: grouping and monitoring stocks manufactured/ procured at the same time.
  9. Predicting Future Demand: Accuracy in demand forecasting is important to ensure availability of the right product at the right time in the right quantity.

The solution for proper management of inventory lies in automation. With the help of a smart inventory management software solution, the companies can access accurate real-time data for demand forecasting, auto-reordering the inventory from suppliers, integrating services like accounting, conducting accurate annual stock-checking to retain control over stocks, barcode scanning, Stock notification & optimization, report generation, multi-location management, Return management, material grouping, purchase records, warehouse management and such.

Example of Successful Inventory Management

MB Klein – After implementing the integrated software for inventory management, their inventory maintenance became more efficient, customer satisfaction improved and so did the shipping time, inventory count and ordering/ receiving processes.

An inventory management system is a tool that helps in tracking goods across your business. It optimizes the entire process from the placement of an order with your supplier to order delivery to your customer, monitoring the complete journey of a product. The main goal of inventory management is to improve visibility and streamline inventory activity with the help of automated and systematic pick/pack/ship/auto-reorder and other features. It is indeed the lifeline of a business. The inventory, therefore needs to be protected and nurtured and Inventory management techniques need to be implemented properly to run a business successfully.

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