Poor Inventory Management: What’s Causing It and How to Stop It

Poor inventory management can cost you time, money and your business

Walmart lost $3 billion in 2013 due to poor inventory management, leading to frequent stockouts.

If that’s how improper inventory management affects a mega-corporation, how do you think it would affect your business?

We don’t want to be too hyperbolic here, but poor inventory management could cost you your business.

That’s why it’s important to recognize that this kind of fundamental problem would negatively affect your bottom line and business growth long-term.

So, how do you know if you’re managing your inventory poorly?

Poor Inventory Management Symptoms

Depending on your industry, there are many signs your inventory management is bad and getting worse.

Here are the most obvious symptoms of poor inventory management:

• A high cost of inventory
• Consistent stockouts
• A low rate of inventory turnover
• A high amount of obsolete inventory
• A high amount of working capital
• A high cost of storage
• Spreadsheet data-entry errors
• Shipping the wrong items to customers
• Lost customers
• Imbalanced lead times

Of course, there are usually many factors that help produce these negative symptoms, but all of them have a root connection to the way you manage your inventory.

Which leaves us with this question:

What causes poor inventory management?

Causes of Poor Inventory Management

There could be a million reasons why you’re mismanaging your inventory.

This isn’t an exhaustive list, but it does outline a few of the most probable reasons why your inventory management is suffering.

Spreadsheets

Excel inventory management is usually the first tool small-to-medium sized businesses (SMBs) use to manage their inventory.

While spreadsheets work fine in the beginning when you’re a small operation, they can quickly lead to severe issues.

In a study of errors in 25 sample spreadsheets, Stephen Powell from the Tuck Business School at Dartmouth College found that 15 workbooks contained a total of 117 errors.

While 40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of those errors had little impact on the businesses studied, 7 errors caused massive losses of $4 million to $110 million, according to the researchers’ estimates.

Manual Inventory Tracking and Stocktaking

Along the same lines as spreadsheets, manual inventory tracking and stocktaking are suitable for small businesses but becomes time-consuming and error-prone as your company grows.

You’ll always be one-step behind your actual inventory levels, which will cause ordering issues.

If for example, your assistant manager forgets a crucial part of your stocktaking process – like updating your data – and today is when you typically make purchase orders, you may order too much and run into the problem of obsolete stock or order too little and experience stockouts.

A Large Inventory

Large volumes of inventory don’t just lead to more management headaches – they can cut into your profits as well.

Most businesses have 20-40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of their working capital tied up in inventory.

Inventory reduction is difficult to do, but it’s essential if you want to go from poor inventory management to great inventory management.

Inadequate Forecasting

If you don’t use or have access to accurate reports regarding sales trends, best-selling items, customer behavior, and the like – you’ll either order too much and experience the problems of a bloated inventory, or order too little and experience stockouts and lost customers.

With accurate reports, you can forecast your customers’ future behavior and order accordingly to meet customer demand without exceeding your budget.

2 Solutions to Poor Inventory Management

While we could go on with causes of poor inventory management, you probably have a good idea of why you may be in the mess you’re in – so let’s get to the solutions.

The first solution we recommend is to check out our post on inventory management best practices. It’ll walk you through 10 ways to transform the way you manage your inventory and warehouse.

The second solution is to test out our cloud-based inventory management software.

Shameless plug, we know.

But here’s why it’s a great solution to the problem of poor inventory management:

It solves most, if not all of the issues we’ve listed in this post.

• Accurate forecasting
• Real-time inventory tracking
• Automated data-entry
• Etc.

The best part is, it’s free to try for 14 days.

If you want to upgrade your inventory management, then we have the software you need to make it happen.