This value shows businesses’ commitment to operating efficiently. After all, inventory management is a crucial part of any business. But, companies still make mistakes in inventory management, compromising their operations.
Luckily, understanding these mistakes and preventing them can alter the outcome. You’d be surprised at how much money you could save with effective management.
Here are some inventory management mistakes you’ll need to avoid.
- Overstocking
Shortages are detrimental to a company as they force customers to consider competitors. So, most businesses focus on preventing stock-outs and overlook the effects of overstocking.
However, overstocking is as problematic as having shortages. You run the risk of losing valuable stock if you are dealing with perishable goods. Holding durable goods for a long time is also problematic, as you’ll have to incur high storage costs.
Ensure you order just enough stock for your customers to cut holding risks. You’ll need to observe your customers’ behavior and forecast sales before placing orders.
If you’re in manufacturing, consider using the just-in-time inventory system. It minimizes stock as you’ll only receive materials from suppliers when needed.
- Inefficient Storage
How you design your inventory storage facilities will influence your operations’ efficiency. You’re losing a lot if you don’t optimize your storage space as you’ll be forced to find new facilities.
Don’t focus solely on your horizontal space. You can make the most out of a small warehouse by utilizing your vertical space and storing your products in efficient patterns.
Failure to do so will make it difficult for employees to locate various products. This translates to delays, forcing you to incur unnecessary expenses.
- Overlooking the Need for Kitting
Few businesses realize the benefits of kitting inventory. Bundling individual products into groups is vital to streamline packaging. It also improves average order values and reduces holding costs.
The result is increased profits and efficiency in your storage facilities. But, kitting is complex and requires specialized training. So it’s best to get this service from experienced providers.
- Not Tracking Inventory Management Metrics
Inventory management relies on metrics to identify inefficiencies in warehouses. This is crucial because inefficiencies may compromise your bottom line. Also, keep an eye on key performance indicators like the time spent locating products.
The more assessments you make, the better your improvements will be.
- Working With Too Many Variants
Most businesses categorize their products based on variants like color and dimensions. While this is important for tracking, maintaining too many variants can prove hectic.
It’ll affect your inventory checking routine, making it more difficult to track products. Try to be as simple as possible by using a few variants and SKUs.
- Poor Employee Training
Companies often assume that automation eliminates the need for manual labor. But this is not the case as you’ll still need employees to control your systems and machinery. Working with untrained personnel is risky because they may overlook critical procedures.
They may also waste a lot of time locating products, causing costly delays. Ensure all employees undergo inventory management training to improve efficiency. Also, ensure they know how to use your software since it’s useless without human direction.
- Maintaining Too Many Storage Locations
When you have multiple storage locations, it can be difficult to keep track of your inventory. It also increases holding costs, thus lowering profits.
It’s best to store all your products in a single location and ship them when needed. This gives you more control of your products and reduces the chances of theft.
Forecast your sales to give yourself enough time to process orders. That will eliminate the need for many storage facilities.
- Situating Storage Facilities Far From Workstations
Some companies maintain storage facilities in cheap areas to reduce storage costs. But, they forget that storage costs are only one component of inventory costs.
Your inventory management strategy should also take transportation and administrative costs into consideration. The further your storage facilities, the higher these costs will be.
Distance also makes it harder for you to conduct routine checks. Over time, you may lose a lot of inventory to errors, fraud, and employee theft.
- Underestimating the Need for Inventory Management Software
The inventory management software market is worth $2.31 billion as of 2022. Most companies realize the importance of investing in inventory management systems. But, some small businesses are yet to migrate from manual management.
Sure, inventory management systems are costly. But, their benefits far outweigh their costs. They improve efficiency and lessen the chances of shortages.
You only need to find the right software for your business to enjoy these benefits. List your expectations, and shop around until you find a system that meets all your needs.
- Poor Management
The best software and employees won’t do you any good if you don’t have a reliable management team. A dedicated team ensures all procedures are followed in inventory management.
Maintain checks and balances in your company to keep management on its toes. You can also conduct random inspections to ensure year-round efficiency.
Avoid Mistakes in Inventory Management to Lower Operational Costs
Making any of these mistakes in inventory management can compromise your activities. Luckily, they are all avoidable.
Mistakes and inefficiencies are normal in business operations. What matters most is your willingness to learn and improve your processes.
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