Whether you own a small business or a transnational corporation, tracking your inventory is a no-brainer. Inventory is often one of a company’s largest physical assets, and not tracking it would spell disaster for finances. Whether you’re tracking your inventory on Excel or through inventory software, here are some consequences if you don’t keep tabs on your items correctly.
#1 Shortages and Surpluses
Remember in Econ 101 you spent the entire semester talking about the supply and demand chart? Do you recall the point in the graph where they intersect? That sweet spot, the equilibrium, is where you want your company to be. If your inventory system is outdated, there’s a high chance that your company will either have a shortage or surplus. A shortage can be dangerous because you cannot fill customers’ orders in time, leaving them disgruntled and costing you more money to fill extra orders. On the other hand, a surplus can leave you with hefty storage fees, space issues, and waste if your product becomes outdated (i.e. food products or technology). How can you figure out a happy medium? If you’re tracking your inventory, you should be able to look back at historical data from the previous year so you can gauge how much to order.
In theory, the amount of inventory you should have on hand at all times should allow a customer to buy whatever he wants, whenever he wants it. The problem is that inventory ties up a lot of assets and can cost a small fortune to store. One of the best ways to figure out the minimum amount of inventory you should have in stock is to compare yourself to other members of the industry. Call up a trade association to figure out what other companies in your field are doing and then try to reduce it by 3 or 5 percent. For example, if Company X keeps a minimum of 100 days worth of widgets on hand, you should aim to keep only 95 days worth of widgets. This allows you to be more profitable than your competition because you’re increasing the speed of products moving out the door, and freeing up cash flow.
#2 Employee Theft
According to the National Retail Foundation, retail companies lose about $15 billion annually because of employee theft. This statistic doesn’t even take warehouses or cargo into account! By implementing an inventory software system, you can keep a closer eye on the movement of your products without making your employees feel like you’re watching their every move. An automated inventory system reduces the risk of fraudulent reporting by having multiple users review and update inventory details. Each user has a unique login ID, so it would be easy to track fraudulent behavior back to whoever was handling the equipment at the time.
You should start tracking your inventory as soon as the shipment comes in so that you immediately follow up with the sender if anything is missing or damaged. Orders are coming in and shipments are going out, but have you compared the number of sales to the amount of orders? If these aren’t lining up, investigate if the items are being misplaced or being thrown away.
#3 Poor Customer Service
Have you ever ordered a product online and were extremely disappointed when the arrival date came and went without any sign of a package? How did you feel? Probably a little peeved with the company you purchased your item from. Customer dissatisfaction often happens when companies don’t properly track their inventory. When a customer adds a product to his cart, he’s assuming that it is in stock and ready to reach him within the time frame your shipping policy outlines. Unfortunately for him, if you aren’t keeping a close eye on your inventory, the item that should be in stock can disappear without a trace (metaphorically and literally). In that case, you’d have to reorder that product and hope that the customer is willing to wait instead of canceling their order and bringing their business elsewhere.
A delay in getting a product to a customer on time is not the only factor in customer service. A customer might call or write to your company with a question about inventory. If you’re keeping track of your inventory, you will be able to send a quick, accurate response, which will leave a good impression of your company in their mind.
Are you questioning whether your inventory management processes are as efficient as you thought they were? Contact us to schedule an appointment with one of our experts to discuss updating your inventory management system.