A successful business relies on many factors, one of which is a reliable inventory management system. Inventory management consists of everything from accurate record-keeping to shipping and receiving of products. Inventory management that is properly maintained can keep a company’s supply chain running smoothly and efficiently. However, there are many common inventory management problems that can occur.
Inventory management problems can interfere with a company’s profits and customer service. They can cost a business more money and can lead to an excess of inventory overstock that is difficult to move. Most of these problems are usually due to poor inventory processes and out-of-date systems.
Common Inventory Management Problems
There are a number of problems that can cause havoc with inventory management. Some happen more frequently than others. Here are some of the more common problems with inventory systems.
- Unqualified employees in charge of inventory. Too many companies put people in charge of their inventory distribution who either don’t have enough experience, are neglectful in their job, or don’t have adequate training. No matter what kind of system is used, companies need to pay closer attention in overseeing their inventory management and making sure employees receive proper training.
- Using a measure of performance for their business that is too narrow. All too often companies will evaluate how well their business is doing. The processes they use are not wide enough and do not encompass all the aspects and factors in the company. Many areas get overlooked and can lead to either inventory shortages or inventory stockpiling.
- A flawed or unrealistic business plan for a business for the future. To predict how well a company may do in the future, you have to collect enough data and accurately analyze it. The downfall of many companies starting out is that they give an unrealistic assessment of a company’s growth. This affects inventory management because if a company predicts more growth than they actually experience, it can lead to an overstock of inventory. The opposite is true if forecasters do not predict enough growth and are left with not enough inventory.
- Bottlenecks and weak points can interfere with on-time product delivery. This means that if too many orders come in for outgoing shipments and do not get handled in an efficient manner, they can build up, or ‘bottleneck’. This slows down deliveries. The same is true for any weak points in an inventory management system. Weak points slow down the system and can stop it altogether.
- Falling victim to the “bullwhip effect”. This is an over-reaction by a company to changes in the market. As the demand of a market changes, a company may panic and order an overstock of inventory, thinking the new market conditions will move the inventory. Instead, the market stabilizes and the business is now left with a surplus of products that just sit in the warehouse, taking up space and not making money.
- Too much distressed stock in inventory. Distressed stock is products or materials in inventory that has or will soon pass the point where it can be sold at the normal price before it expires. This happens all the time in grocery stores. As a particular food product nears its expiration date, the business will discount the item in order to move it quickly before it expires.
- Excessive inventory in stock and unable to move it quickly enough. This is probably the most common problem for most businesses. Cash-flow comes from moving inventory. If a company buys an amount of product for their inventory and they do not move it, the company ends up losing money.
- Computer assessment of inventory items for sale is inaccurate. Nothing is more frustrating than going to a business that says it has a product but it turns out that they do not. The quantities are off and the actual items are not available. Too many people assume that the computer records are infallible. But the records have to be entered by a person and if the person responsible does not keep accurate records, it can turn into a real headache. Inaccurate inventory records can easily result in loss of money and strained customer service.
- Computer inventory systems are too complicated. There are many inventory software programs available for business use. The problem is that many of these programs are not user-friendly. Computer software developers do not take into account that most of the people who will actually be using these systems are not tech savvy. A company does not always have the time and money to invest in training of personnel to use software effectively.
- Items in-stock get misplaced. Even if the computer accurately shows the item as in stock, it may have been misplaced somewhere at the warehouse, or in the wrong location within a store. This can lead to a decrease in profits due to lost sales and higher inventory costs because the item must be re-ordered. Plus, the company must spend the time for employees to track down the misplaced item.
- Not keeping up with the rising price of raw materials. This falls more into the accounting end of inventory management. By not keeping current with the rising price of raw materials, a company will lose profits because they are not adjusting the price of their finished products. Finished items in inventory must be relative to the cost of raw goods.