Inventory utilizes the capital of the business in order to ensure the smooth flow of buying and selling of products. Having real-time data on your inventory available at your fingertips allows you to restock to fulfill customers' orders efficiently. Therefore, with the availability of the customer's favorite products, you can satisfy their needs and keep the cash flow moving. Unfortunately, it can all go wrong if your inventory is being mismanaged.
Regardless of the business size, poor inventory management leads to various negative impacts on the business and prevents it from growing. An example of this can be Walmart, which lost $3 billion in 2013 only because of poor inventory management. Considering this, if such multinational corporations can be affected by inefficient inventory management, it can affect your business as well.
Let’s dig deeper into the top 5 drawbacks of poor inventory management to help you consider an alternative.
What are the Signs of Poor Inventory Management?
When your inventory is being mismanaged, you start seeing certain signs telling you to implement a change. This can include a lack of real-time reporting, which can lead to ill-informed decisions, leading to overstocking and understocking. Additionally, it can affect your relationships with your supplies with frequent rush orders. When suppliers are forced to fulfill your new order requests, it can become hard to sustain your business partnerships.
This goes beyond this; here are all the negative impacts of poor inventory management, making your business underperform.
1. Overstocking and Understocking
Businesses keep all their inventory in a gigantic warehouse. Thus, with poor inventory management, you wouldn’t know if you have enough stock to fulfill future orders. Therefore, when you are not on the same page, your customers will start considering an alternative. This can lead them to your rival with a few clicks browsing for the same product.
However, if you spend capital on your inventory and end up overstocking it, it can lead to unnecessary expenses. Considering this, businesses use Xero accounting software to effectively track their inventory and manage stock accordingly to avoid any unfortunate situation. This minimizes the chances of overspending or running out of the stock.
2. Poor User Experience
Inventory plays a vital role in affecting your user experience. Specifically, when your products are out of stock, it can drastically affect your reputation. It only takes a few seconds for customers to opt for a different seller if your products are out of stock. Therefore, with poor inventory management, you won’t be able to fulfill buyers' requests efficiently.
Additionally, according to a study, 70% of customers are likely to buy products from your competitors if they are out of stock. Thus, to retain your potential customers, you can’t risk having insufficient stock. To overcome this problem, businesses must use an effective inventory management solution to have real-time data for better stock management.
3. Missing Sales Opportunities
According to a study, 73% of 46,000 customers demonstrated that they use multiple channels in their online shopping journey. Considering this, your business must be present on various different platforms to stay in the competition with your competitors. This allows you to enhance your brand awareness and drive more revenue.
However, this can’t be achieved with poor inventory management. Without a good inventory management strategy in place, it can be hard to process customers' orders. Specifically when you receive order requests from multiple channels simultaneously. Therefore, it's important to use modern-day technology that helps you allocate stock to multiple channels for effective inventory management.
4. Inability to Track Inventory
Inefficient inventory management is prone to more errors, specifically when you are selling on multiple channels. This can raise another challenge of stock allocation and tracking the inventory. This process gets comparatively more challenging if you are using manual ways to process orders.
Manual order processing can lead to inaccurate data, which makes inventory tracking more overwhelming. Thus, to alleviate this and track inventories across different sale channels, having one centralized platform to manage orders is essential. This leads to efficient inventory management and also helps you reduce order duplicates with accurate and real-time data in hand.
5. Inventory Shrinkage
Poor inventory management won't just disorganize your data but will cause a mess in your warehouse. If your inventory is not organized properly, it can cause inventory shrinkage, which leads to stolen or lost products. Additionally, it can also lead to employee burnout, delivering the wrong products to customers, and loss of revenue.
The physical management of your inventory depends on how well your inventory is being managed. Having software that helps you process orders and track and manage your stock will reduce the chances of inventory shrinkage. Therefore, companies take advantage of Xero accounting software that is implemented with advanced features to effectively help you with inventory management.
How Can You Get a Solution for Inventory Management?
Reduce irregularities in inventory management processes with automation and advanced features. Effectively manage and restock products with real-time inventory data. Contact professionals now to get a tailored solution that ensures a smooth flow of sales.