Top 5 Common Inventory Management Mistakes And How to Fix Them

The core of any eCommerce business involves getting products to customers. That is, after all, how you generate revenue. Managing your product inventory efficiently is, therefore, what helps you stay on top of every other aspect of your business because every process revolves around the product and its place in the product lifecycle.

What is Inventory Management

‘Inventory Management’ involves the management of the entire lifecycle of every product within your warehouse — from the time the procurement order is placed up until the customer accepts the product on delivery. This involves identifying the right products and SKUs, procuring them, storing them, shipping them, calculating stock, forecasting trends, etc.

The entire process of managing inventories — from raw materials to finished products constitutes inventory management. Good inventory management is the efficient streamlining of inventory processes so that there is neither shortage nor excess of inventories.

Inventory management is important for businesses of all sizes. Having complete control and visibility into your inventory enables you to take key decisions at the right time. The only way to improve the accuracy of your procurement and storage processes is through good inventory management.

Managing inventory efficiently is important for the proper functioning of the warehouse. It helps you fulfil customer orders while maintaining the right amount of stock and keeping inventory costs low. How much to store, what to order, how much to order, and when to order are some questions that need a fine balance, and that’s where inventory management comes in.

5 Common Inventory Management Mistakes & Solutions

We put together a list of 5 critical yet common mistakes that most warehouses are making even today when it comes to inventory management. We have also listed a solution for each to help you get started in fixing these errors.

1. Overselling or underselling products because of inefficient order management

Two mistakes lead to overselling/underselling of products — inefficient inventory management (not knowing exactly how much is in stock, in real-time) and inefficient product depletion management (not maintaining a live count of stock as products are purchased).

Both overselling and underselling are detrimental to a company. Overselling can hamper customer experience and harm the brand while underselling results in a stock pile up and product stagnation at the warehouse.

Inefficient order management in most cases is a result of using manual or outdated inventory tracking procedures. In some cases, businesses prefer to ‘control’ the inventory themselves, leading to manual counting methods, which is a mistake.

When there is a lag in the sync up of product count between the store selling the product and the warehouse storing the product, it results in a mismatch in inventory count. Using manual or outdated methods, even ones like using excel sheets, to manage inventory creates this gap and leads to inefficient order management.

Solution

Implement a centralised, automated inventory tracking software (like an ERP or a WMS). These solutions are affordable even to small businesses, especially when you consider cloud-based solutions.

A centralised system keeps track of product movement at both locations simultaneously — products in stock at the warehouse and those sold via the online/physical store. This enables it to deduct stock quantity as they are being purchased in real-time, maintaining accurate count and preventing overselling of products.

You can also automate the procurement of products by setting a threshold, after which the software automatically creates a procurement request. This enables you to purchase in limited quantities and prevent underselling while ensuring that products are being procured right on time to prevent them from being out-of-stock at the store.

2. Running processes manually instead of using automation

Not automating repetitive tasks, like order management mentioned in the previous point, leads to expending unnecessary time, effort, and ultimately money, all of which is completely avoidable through automation.

In many cases, businesses assume automation software to be expensive and difficult to use. Modern solutions, however, are more robust, making them easy to use, and since they are hosted on the cloud, you can opt for subscription-based solutions that work on a pay-per-use model and are affordable.

Modern solutions (like an ERP or a WMS) come with automation capabilities which means you only have to implement one solution to manage all aspects of the warehouse. The time and money spent on purchasing software and training staff to use it will, in the long run, prove to be more valuable than running tasks manually.

Solution

Implementing automation happens in three stages -

1. Identifying tasks (currently being executed and also future ones) that can be automated.
2. Selecting and purchasing a solution that allows you to automate ALL (preferably) of the identified tasks.
3. Training resources to use the solution, analyze data and infer results to re-configure the solution when needed.

Introducing automation into business processes will drastically reduce execution time and eliminate human-prone mistakes.

3. Failing to adjust to fluctuating demands because of a lack of forecasting

Data is critical to any business, especially ones that deal with logistics. Without sufficient data, businesses are unable to forecast spikes or dips in customer demands which ultimately leads to overselling or underselling of products.

Collecting data and forecasting is not just important to manage inventory but also to predict trends. Customer demands and trends are constantly changing, and being able to forecast these changes will help you procure not just the right quantity of products but also select the right products and SKUs.

Solution

Data collection and forecasting are important for two reasons:

1. To understand the current needs and choices of your target audience so you can procure the right products.
2. To understand the demand for these products so you can procure the right quantity of products.

A centralised inventory management software will help you collect data, analyze it, and forecast customer demands. It analyses sales data and other KPIs set by you to project and forecast results. You can also leverage automation to adjust the number of products being procured to match the forecast automatically.

4. Measuring inventory management KPIs inadequately

Optimizing the supply chain can only be done when performance is being measured. Defining the right KPIs is important not only to know how the store is performing, but this data is also critical for forecasting and automation.

In the context of inventory, KPIs are metrics that can be analyzed to understand how the company is handling inventory and how this management can be optimized. Some KPIs are standard and can be implemented by any business, while some are specific and depend on the type of products being sold.

Solution

Analyze all your products and processes and define KPIs that work for your business. Here are some examples -

• Availability rate — this is the percentage of products available at a given time. The ratio of products currently in stock to all products on the catalogue is the availability rate of the store.
• Stock rotation calculation — This is the average number of days that the stock takes to run out. This KPI gives you a sense of which products are quick selling and which are not and lets you plan procurement and other marketing strategies accordingly.
• On-time delivery — The percentage of products that were delivered on time. This gives you an insight into transportation and delivery performance.

Plan out which KPIs work for you and then put in place a process to collect data (using an ERP or WMS) that quantifies these KPIs.

5. Implementing excessive IT tools or software

All the above warehouse problems can be solved through IT tools and software, but implementing excessive solutions can become a problem.

Every solution integrates with the warehouse and tracks data that you use to infer results. They also provide automation tools to improve processes.

Using multiple solutions might end up giving you mismatching data making it difficult to decide on which one is accurate and what action to take. Automation systems could interfere with each other and break the process rather than simplify it. Most of all, you will end up spending more money and resources on implementing multiple IT solutions.

Solution

Instead of purchasing IT tools for their single solutions, look for a single tool that provides all the solutions you need.

By first listing out what you are looking to solve through software, you will be able to decide better which solution works best. This will require extensive combing of all your business processes and tasks so you can list out what needs technological intervention.

Conclusion

Inventory management can be seen as a science and an art, and it does not have to be a tedious and complicated matter. Using the right tools and processes, you can put in place a streamlined solution that runs automatically through the tandem efforts of people and technology.

The best time to start planning for efficient inventory management was yesterday, and the next best time is now. The longer you wait, the longer the mistakes we have mentioned in this article will continue to occur, and the more you will lose in brand reputation and revenue. With the right inventory management solution, you can run a highly efficient warehouse and eCommerce business and keep your customers happy while churning revenue.