Not paying close attention to inventory management can result in major issues for any business. Just ask Nike. In the early 2000s, this massive athletic apparel and accessories manufacturer lost $100 million in sales and saw their stock price depressed by 20% due to an inventory blunder. Their newly-implemented inventory management software suffered from numerous bugs and data errors which resulted in inaccurate demand forecasting. These issues resulted in the overproduction of products that were in actuality selling poorly and the inadequate production of their most popular products. There was a high demand for popular products but not the right amount of supply to keep up. Oops!
This anecdote shows that it can happen to anyone. If you know what inventory mistakes are most commonly made, you can avoid possibly going down the same path as Nike or at the very least be more prepared for potential disastrous situations. Here are some of the most prevalent inventory-related mistakes you should try and sidestep:
Doing yearly inventory checks
Oftentimes businesses will dedicate an entire day each year to check their physical inventory against existing information on their system. Stopping operations for such an extended period of time is considered by many to be an outdated practice as well as counter-productive.
There is the alternative of cycle counting. This means that inventory checks are performed continuously throughout the year instead of annually. It has been found by many that cycle counting is less disruptive to daily operations and not as time-consuming. Also, with less time in between checks, errors are more easily discovered. If you make inventory checks a part of your daily or weekly routine, it feels less like an arduous chore.
Having a disorganized stockroom or warehouse
Inventory checks often seem more frustrating than they need to be purely because of messy storage habits. Sometimes people will just put inventory wherever they can find a spot without taking into consideration whether that is indeed the ideal location. This is especially true with growing businesses that have a sudden influx of product.
The labelling of shelving and other storage solutions in a common sense manner is essential to keeping your stockroom or warehouse organized. On top of that, those who bring in the inventory need to always put the right items in the right place to ensure that the system continues to work. Also, think about what type of items go where. For example, it stands to reason that the items that one sells the most of need to be the most accessible.
Lack of automation
Manually tracking inventory can be hindering and takes up a lot of time. Some people prefer it but it tends to take up resources that can be spent elsewhere. Inventory management systems are easier to update and cloud storage can help to prevent loss of information. Automation also aids in more accurate forecasting and quickly making patterns apparent.
Inadequate training and communication
Those who use and implement the inventory system need to have adequate knowledge of it. There are real risks in giving a person with a lack of practical knowledge authority over the entire inventory system. This requires that anyone involved with inventory should have proper training before starting to work with it to avoid future issues.
There should also not be just one person handling the inventory. If that one person in charge is not available, you won’t be able to access that knowledge in an emergency situation. In addition to this, implementation should be consistent from person to person to avoid costly errors and confusion. Constant communication is vital here, not only between those who manage the inventory but also between all departments. If, for example, your sales department is not made aware of inventory shortages, they might sell products that are not available.
Absence of forecasting
Not forecasting at all or doing so inaccurately can result in not being able to meet customer needs and a potential drop in customer satisfaction. Using inventory data for proactive planning helps you know what’s in stock and what’s trending. Forecasting permits you to see what customers want and which products are not as popular. If you know what’s not selling, you can avoid needlessly purchasing unwanted products and overstocking.