Common inventory management problems and how to avoid them

Introduction

If a retail business is the engine that yields sustainable revenue, then inventory is the fuel that helps to run the engine smoothly without any trouble. The better you maintain inventory, the better mileage your business growth gets.

In contrast, if inventory is not handled correctly, you will start noticing the impact slowly. Poor inventory management could lead to losing sales, poor customer service, and more churn. Below are a few common inventory management challenges and solutions you should be aware of.

Unrecorded or manual purchases

Not following a proper order tracking system is the root cause of most inventory management problems. Receiving goods without a purchase order, placing orders over a call or WhatsApp, verbally informing retail salesman about orders, and any other inconsistent means of communicating orders makes purchases untraceable and unaccountable.

Such practices will lead to difficulty in supplier service tracking, confusion in delivery, and hard inventory management, potentially creating bitter suppliers as well as poor customer experiences. To account for stock received at stores, and to track inventory efficiently, raising a purchase order (PO) is essential.

Poor supplier selection and relationship

In a retail business, customers and suppliers are two sides of the scale; you have to monitor and balance relationships with both parties. If a supplier does not fulfill your needs with on-time deliveries, it will lead to stock-outs and impact sales. If the supplier is dumping stock, inventory carrying costs will increase, and some items can expire, resulting in more returns.

If suppliers do not inform you of their availability or stock availability in advance, you will struggle to plan purchases and inventory. A poor relationship with suppliers, not tracking their deliveries, and not being vocal about the supplier’s service can lead to a lot of inventory management challenges.

Sales without inwarding materials

Inventory management is a continuous process that involves recording goods leaving the store as well as those entering the store. Stocks get updated and goods are ready for sale only if a goods receipt note (GRN) is made. However, if a GRN is not done or it is not made against the corresponding PO, stock reconciliation becomes difficult.

If sales happen without recording them, there will be no visibility of the items delivered. This causes difficulty in tracking the quality and quantity of items received, confusion during invoicing, conflicts during purchase returns, and other critical problems.

Human errors in manual processes

Making a GRN requires more caution as there are more possibilities for human errors like adding or leaving out items against the PO, noting incorrect quantities, updating different batches, making errors in the cost price, MRP, and many more. Similarly, sales or purchase returns can happen for a batch, but the system entry would be made for another which updates the stock incorrectly.

Manual errors can also happen in the warehouse. Some examples are entries done for stock transfers without physically transfers and vice versa; entries made correctly with stock going to the wrong outlet and vice versa; and stock allocated to the wrong store, among similar errors that can impact stock distribution. All these mistakes can appear small but have a big impact on the business.

No proper layout and planning for stock storage

Good store management is not about how much space there is, but about how well you manage it. The more storage points in your business, the more chances to accumulate invisible inventory. Your staff visits multiple places to pick items and spend time during stock audits. If your stock is not properly organized, your staff spends more time than needed getting to the required items.

When items are difficult to track, it can also lead to theft and wastage. Thus, an inefficient warehouse layout and poor processes can lead to decreased efficiency, poor inventory control, bad customer service, and countless inventory management problems.

Practicing poor refilling strategies

If there are multiple variants for a parent bulk item, identifying the demand of each child item and repacking them in appropriate containers in the correct quantity as per the need is a difficult task. Mostly, the bulk item is not converted completely into child items as some stock is left in the bag, which increases the possibility of theft and wastage.

After the items are ready, they are not placed on the rack at the right time, in the right quantity leading to empty shelves, a bad impression on customers, and a negative impact on sales. If the items are not filled in the order of their batch expiry date, the recent ones will be sold first leaving the previous batches behind, resulting in more wastage due to expiry and, hence, more returns.

Poor stock accounting and control

Irregular stock audits will lead to untracked inventory which can be left unsold for weeks or months. Raising orders in such times, despite sufficient physical stock, results in accumulating stock that either expires, gets damaged over time, or is sometimes lost due to theft. If the physical stock doesn’t match with the system stock, it leads to difficulties in demand planning, purchase ordering, stock replenishment, and sales.

Maintaining negative inventory is also one of the most common aspects that can lead to inventory management issues. For example, it can result in difficulty in inventory tracking, last minute stock-outs, inaccurate purchase planning, and poor customer experiences.

Not ordering what is required

Holding excess inventory (overstocking) can cause high storage costs, item wastage, and space constraints. Having too little stock (understocking) can result in the inability to meet customer demand, frequent stockouts, revenue loss, and poor customer experiences.

Predicting sudden sales spikes during special events by human instincts alone will be inaccurate, resulting in the inability to serve customers, loss of sales, and a dent in your cash flow. New items or trial samples given by suppliers can be reordered only when there is sufficient revenue from them. The inability to analyze and forecast the demand for such items will lead to stock dumping, and inappropriate investments.

Solutions for inventory management issues

While there are many process deviations and human errors that challenge inventory management and control, following a few strategies and streamlined processes can help you run your business efficiently. Here are a few solutions to inventory management problems.

Record and track all activities in the supply chain

Digitalize all transactions in the business that involve inventory like purchase and sales orders, goods inward (GRN), purchase and sales returns, bills and invoices, and others. Record the transactions between stores, and warehouses to stores by making proper entries of the transfers and allocations.

Analyze the reports of the transactions, track the transactions centrally, and monitor accounts regularly to take relevant actions to correct or improve the processes, and strategies on time.

Choose the suppliers wisely and build good rapport

Every problem in inventory begins with the purchase, which is supplier-dependent. Consult with close acquaintances and well-wishers in the retail industry about vendors in your region who provide good service, better rates, and timely deliveries.

Once you have a list of suppliers for your business and raise POs, monitor their service levels and choose a suitable supplier. Maintain proper order cycles, give regular orders, track them, and maintain good relationship with them for continued business.

Ensure efficient planning and execution in stores and warehouse

Below are some strategies that can solve most inventory management challenges in business:

• Divide items based on demand and order them accordingly. Follow the Pareto principle to order fast-moving items more and slow-moving items less.
• Frequently sold items should be easily accessible in the store at waist and shoulder height, and, in the warehouse, near the shipping area.
• Optimize floor space by stocking items vertically, and the rack space by stocking the required items based on their demand.
• Reduce logistics costs and time by having your warehouse and store at a minimum distance from each other. This can also help your staff pick items swiftly in case of emergency.
• Implement cross-docking where products are unloaded from incoming trucks and immediately reloaded onto outbound trucks for delivery.

Adhere to the retail best practices

Following a set of Standard Operation Procedures (SOPs) and best practices can help cut down the common problems in inventory management:

• Restrict negative stock, and audit inventory across your store and warehouse regularly to keep the physical inventory in sync with the system inventory.
• Follow the first-in-first-out (FIFO) approach to ensure old items are sold first, reducing the chance of expiry or damage.
• Label every product possible with item details and relevant barcodes to avoid human errors during transactions, and identify them easily during stock picking.
• Centralize purchase operations and repack planning to eliminate overstocking and understocking, avoid thefts due to open bulk items, and to minimize execution times.
• Arrange products in a logical way, maintain cleanliness in your store and warehouse, and encourage staff to do batch picking to reduce picking time.

Invest in smart technology and automation

With growing competition and rising standards of doing business, it’s necessary to incorporate the latest technologies and smart applications to optimize inventory levels, minimize human mistakes, and maximize productivity.

Implementing an AI-based solution for purchases can help analyze sales trends, forecast demand, predict spikes during festivals and seasons, perform warehouse operations, and more in minimum time, with the least effort and highest efficiency.

Using comprehensive inventory management software and dedicated mobile apps for inventory-related operations can reduce execution time, improve accuracy, and offer better control and easy tracking.

Conclusion

Optimizing inventory and having complete control will help minimize the margin of error, automate processes, forecast demand better, and improve customer satisfaction.

Here, problems and solutions in inventory management were highlighted, but the those solutions will only be effective when the words are put into action. Implementing these solutions with an efficient and comprehensive inventory management system can turn your business into a well-oiled engine, improve your inventory mileage, and beat your competitors.

It is time for you to begin your journey towards success and grow by leaps and bounds in your business.