The average person fails to get excited about the topic of inventory management. It’s just not something that gets your heart racing and blood pumping. However, if you’re a business owner, it needs to. You have to treat inventory management with the respect and attention it deserves, or you risk making debilitating mistakes that will hinder your ability to scale.
Here are some of the most common mistakes businesses make when it comes to inventory management:
1. Using Narrow Performance Measures
One of the biggest keys to successful inventory management is effectively measuring past performance in order to accurately forecast future levels. While there are hundreds of unique strategies and techniques that can be used, the biggest mistake businesses make involves the use of narrow performance measures.
If you want to accurately determine future levels of inventory, you can’t simply take a reactive approach. Using a small sample size of past performance and demand is too near-sighted. The fast-paced nature of today’s marketplace requires proactive efforts, not reactive ones. You must know how quickly inventory moves through the company and consistently gauge demand.
If you aren’t looking at customer demand, inventory levels, back orders, fill rates, and inventory turns as one cohesive entity, you’ll fall behind. Every aspect of inventory management is somehow interconnected or related. When one variable changes, the value of another does as well. Don’t restrict yourself to one or two measures when forecasting. Take your time and look at as many different metrics as possible.
You also want to make sure you’re safeguarding your company against forecast errors. Most companies will plan for two or three days of extra inventory, just in case there’s an error. The last thing you want to happen is go out of stock and lose money. It’s much better to have extra units on hand.
2. Not Spending Money on the Right Tools
If there’s one area where you want to spend, it’s on the right tools. Don’t skimp on software and training. You can have the best facilities and managers in the industry, but they’re worthless without the right resources.
Consider this: Why would you spend thousands of dollars on specialized inventory management software and then fail to spend a little more to train your employees on how to use the software? It just doesn’t make any sense at all. The software won’t do you any good if your employees can’t utilize its features.
3. Having More Inventory Than You Need
“Afraid of being caught short, it’s easy to spend too much on inventory, which can eat up working capital and erode profits,” writes Lisa Girard of Entrepreneur.com. “Warehousing isn’t free, of course, and inventory that sits on a shelf is subject to damage, depreciation, and even obsolescence.”
While there’s a fine line between having too little inventory and storing too much, you should avoid overstocking. It may not be a big deal at first, but this is an expensive mistake that will catch up with you. Improving your forecasting efforts is the best way to improve accuracy in this area.
4. Lack of Communication
Practically speaking, a lack of communication is one of the biggest inventory management killers. Whether it occurs in the warehouse or between the warehouse and the office, slipups here can be very costly.
Common symptoms of a lack of communication include sudden promotions and deals that catch the inventory manager by surprise, solely relying on the automated forecasting of an inventory management software, and never having face-to-face meetings.
Inventory management is very analytical, but it also requires intuition and human input. If your team is only relying on numbers and automated programs, you’re missing out on profitability. Internal communication is vital and must be a priority.
5. Having No Backup Plan
Every single aspect of your inventory management needs a backup plan. If X happens, then how do we respond? ‘What if’ questions should become a major focus. A solid backup plan can keep a minor inconvenience from becoming a disastrous problem.
For example, Steve Warren of Multichannel Merchant harps on the need for protecting your biggest products. “If you have a high-selling item that’s difficult to keep in stock or are planning a promotion that will significantly increase demand, it often makes sense to commission a second vendor for the product as a back-up plan,” he writes.
Your backup plan may look different than your competitor’s backup plan, but that’s okay. The important thing is that you have one in place. Hopefully you’ll never have to use it, but it sure is reassuring to know it’s there.
6. Trying to Handle Things On Your Own
While it may seem as simple as plugging numbers into a spreadsheet, placing orders, and tracking units, inventory management is not something a business owner should attempt to handle without first gaining some experience. Despite this truth, so many business owners would rather save on payroll and do it themselves. The reality is that you aren’t saving anything. The mistakes you make will ultimately cost you more than it would to simply hire a professional.
On a related note, some business owners attempt to pass off responsibilities to unqualified employees. This is arguably more dangerous, because you may not notice the mistakes right off the bat. However, over time you’ll notice that inventory is decentralized, there’s very little forecasting involved (just buying), and your entire inventory management strategy is reactive, as opposed to proactive.
Professional inventory managers are skilled at evaluating suppliers, preparing the right documentation, purchasing new inventory, making accurate projections, and more. It may look simple in the beginning stages, but inventory management is not something you want just anyone handling. It can make or break your entire supply chain.
Contact QStock Inventory Today
QStock Inventory is the premier barcoding and inventory control software on the market. Our real-time, proprietary software easily integrates with your existing financial systems and offers total control over everything from inventory and manufacturing to work orders and delivery. With our rich features, you can achieve an order accuracy of more than 99 percent and efficiently scale your business without the fear of overextending your resources.
For additional information regarding QStock Inventory and how it integrates with QuickBooks and Intacct, please don’t hesitate to contact us today!