Top Inventory Management Challenges and their Solutions
Inventory is a significant asset in the form of working capital for every type of business. But, inventory management is a tedious and convoluted process, and as inventories get more significant, the task becomes messier. It faces several challenges like losses due to theft, inaccurate counting of stock, and many other issues. Businesses must overcome these challenges for productive and profitable inventory management.
For instance, small inventories are easier to manage manually, but manual methods are inefficient and time-consuming for more extensive stocks. The challenge of managing large inventories can be overcome by using inventory management software to automate the management process. This post will discuss some challenges that inventory management faces and the solutions to implement to tackle them.
Challenges and Solutions
#1 Inaccurate Counting of Inventory
Inaccurate counting is a common challenge in inventories using traditional methods, more precisely physical counting. This method of counting inventory is susceptible to errors. And these little mistakes and errors can lead to loss to the company. It can lead a company to pay the price for a higher number of items than the actual numbers added in the inventory. This situation might arise if an error appears while counting the stock received that mostly ends up costing the company.
The best solution for this challenge is to automate the counting process by using inventory management software and employing methods like cycle counting. These solutions will accurately count your inventory at regular intervals and track the items to identify their status and location.
#2 Inventory Shrinkage
Inventory shrinkage, too, is a common but a more significant challenge for inventory management. In simple words, inventory shrinkage is a loss of inventory that can be attributed to several factors. These factors include theft, shoplifting, product damage, expired products, vendor fraud, etc. These problems result in a loss of sales. According to Statista, on average, due to inventory shrinkage, retailers lost 1.33% sales, thereby resulting in a loss of $46.8B for the US retail economy in 2017. This data suggests that it’s essential to mitigate the possibilities of inventory shrinkage as much as possible.
Some ways to tackle this problem include:
- All the items should be counted once delivered by the vendor in the presence of trusted authorized managers. Once the inventories delivered match the number ordered, then they should be stocked with utter care in the storage. This is the best solution to avoid inventory shrinkage arising due to vendor fraud.
- To mitigate employer-related theft, employer background checks should be carried out before hiring. These background checks should include past criminal records, residential addresses, past work records, etc.
- A sound security system should be employed equipped with cameras and smart sensors to reduce shoplifting possibilities in stores.
#3 Challenging Supply Chain
Supply chains get bigger and more complex as a business expands its boundaries. In simple words, as business goes global and starts cross-border trading, the network of buyers, manufacturers, suppliers, and distributors grows. This adds up, making the supply chain more opaque and difficult to manage. Due to these complexities, mismanagement follows, leading to tracking issues, incorrect and untimely shipping, etc. With more stockyards, the tracking and accounting of products become difficult without a proper system. Furthermore, a business wastes capital in such expansion ideas due to inefficient handling of the supply chain.
Automating inventory management using inventory management software can help in enhancing the visibility of the chain. It can track product purchases and deliveries across multiple chains by using RFID and Barcode inventory systems. This keeps you updated with your products’ real-time location and helps you ensure their timely deliveries. The same barcode and RFID systems can help a great deal in accounting and tracking the inventory present in-hand. Thus, using an effective inventory management system enhances transparency among the supply chain and minimizes inventory loss.
Deadstock refers to those products holding space in the inventory for a long time without getting sold. This is yet another challenge for inventory management, which creates cash tied up in the form of obsolete inventory. Usually, this situation arises when stock in larger than needed quantity or demand is bought. This excess inventory doesn’t get sold due to limited demand and gradually loses its value over time. Deadstock not only unnecessarily holds up space in the warehouse but also represents tied-up capital. It also gives rise to the need for expansion of the storehouse for settling the new in-demand inventory, thus adding up to the expense.
The best solution to overcome this problem is by accurate demand forecasting with the right inventory management software. By predicting demands for the future, you can know about the product and the right quantity to meet the demand. By keeping the right amount of inventory, you will ensure that no stock is kept for a longer time and thus mitigate the possibility of deadstock.
#5 Product getting Out of stock
This is another challenge that not only reduces sales but also hits the business reputation. For a brand to become successful, the company needs to keep the right products available at the right time for the customers. Whether it’s online shopping or physical shopping, customers should get the product they are looking for. Getting out-of-stock at a time of peak season disappoints customers and leads them to look for another brand or platform to meet their needs.
The best way to address this challenge is by keeping a threshold value for reordering inventory. When the amount of stock in-hand reaches the threshold value, you should start the reordering process. The other option is demand forecasting by using the appropriate inventory management software. Firstly, this software will predict future demand by using historical records and analyzing past and present trends. Next, it can also be programmed with a reorder point at which it should automatically reorder the in-demand inventory when it reaches the threshold. By using these methods, we can indeed eliminate the possibility of stock-outs.
Inventory management faces many challenges that make it complicated to handle. Ineffective management can lead to loss of inventory, sales, and even customers. This only adds up, making the business suffer losses. It is imperative to overcome these challenges for productive and profit-making companies. It has been witnessed that using inventory management software can reduce most of the challenges faced by businesses. It can also improve visibility inside the supply chain as well as in the stockyard. Thus, it is more straightforward to locate the items and know about the inventory in-hand, thereby facilitating the reordering process.
Author Bio- Hi There, I am Shaun Williams, a content writer with Goodfirms, a research platform for Cloud Computing, Ecommerce companies, Translation services companies, among many others. I enjoy communicating ideas and knowledge creatively and also ensure that the readers never suffer from boredom while reading my posts.