Inventory management is often considered as the single most challenging aspect of any business.
Businesses with poor inventory control generally experience costly warehousing fees, slow-moving items in stock, as well as product shortages, chaotic or congested warehouse floors, shipment delays, pricing errors and much more.
Assessing the costs that lack of inventory and surplus of inventory can cause is crucial to the successful running of your business, after all, both can severely impact on your bottom line.
Here, we’ve listed the main causes of product shortages and overstocking, and the most efficient ways of preventing them.
Common Causes of Product Shortages
• Inaccurate Inventory data
Shipment variances, misplaced products, returns, or stolen goods are all common occurrences that can lead to inaccurate inventory data.
• Poor Forecasting
Lack of demand forecasting due to absence of data on stock turn, sell through, historical sales, promotions, seasonality, and the economic climate.
• Shortage of Working Capital
This can result from poor cash flow management on the retailer’s part and therefore limit the values of monthly orders.
• Variability in Demand
An unexpected spike in demand can mean without safety stock, you are left with product shortages.
• Poor Monitoring & Inefficient Processes
Poor employee training on how to monitor stock levels and perform replenishment, as well as inefficient processes for stocking shelves and placing replenishment orders.
Common Causes of Overstocking
• Unreliable Suppliers
The uncertainty of not knowing when orders will arrive can mean requiring more inventory in order to cover yourself.
• Variability in Demand
When the demand for a product varies, this forces a business to maintain a safety net of stock to cover any unexpected or heightened surge in sales for that item.
Two warehouses as opposed to one, can mean harbouring additional safety stock without realising. By consolidating two warehouses into one, you can reduce the amount of safety stock held.
How to Prevent Product Shortages and Overstocking
The losses associated with out-of-stocks are substantial, and as a result can negatively affect sales, as well as your company’s reputation and future planning efforts. While holding excess inventory in a business ties up business funds and can result in costly warehousing fees. So, how do you remain safely positioned in-between the two?
• Eliminate the Uncertainty
The uncertainty caused by inadequate forecasting and lengthy lead times are key contributors to stock shortages, just as the uncertainty caused by poor tracking of inventory quantities and mistaken orders can lead to overstocking. So, what’s the solution?
• Gain Better Visibility
Having better visibility into your inventory levels means you can gain better control and determine when your stock needs to be replenished, or when safety stock is in abundance and needs selling.
• Invest in Inventory Management
Implementing a comprehensive inventory management system, such as a Warehouse Management System (WMS) can help you to attain better visibility. A WMS can assist by limiting inventory movement and improving record accuracy, helping to reduce lead times, lower the need for safety stock, and ensure low stock is replenished.
At Vardells, we offer Warehouse Connect, a WMS that’s fully scalable to fit with any business size, needs or requirements to help ensure your business benefits from faster inventory turnover, total stock control, delivery reporting and much more.