Walking the Thin Line Between “Overstock” and “Out of Stock”
The concept – and its importance – of proper inventory management is something today’s manufacturers and warehouse managers are well aware of. Indeed, it’s not just a company that gets affected by ensuring accurate stock levels, it’s the fashion in which customer experience and satisfaction is delivered, as well. However, there are a myriad of common problems that turn up time and time again in this area, and they normally have everything to do with either too little inventory to fill orders or too much for the current demand.
Though this issue of running out of inventory and overstocking occurs more often than many warehouse personnel would care to admit, there comes a time when one must walk that thin line – or strike the perfect balance – between overstock and out of stock. Fortunately, there are solutions inventory managers and manufacturers alike can take advantage of to avoid running out of inventory while at the same time making sure an excess of inventory isn’t purchased.
Addendum 1: Cost as Motivation
There’s a price to pay when companies overstock and understock, and it extends beyond the mere frustration of customers: It has the potential to cost businesses more than they might imagine. A recent study conducted by the IHL Group, an analyst firm, suggested that overstocking, understocking and unnecessary merchandise returns can have overwhelming repercussions – to the tune of some $1.75 trillion across the global retail industry. Included in this analysis is more than $634 billion in out-of-stock losses and over $47.1 billion in overstock.
To call these numbers significant would be something of a gross understatement, but it gives us a peek into the world of inventory management and just how impactful a change in this sector can be. The goal should be to bring these dollars “back into the fold,” so to speak, so that capital can be created and utilized to considerably improve a company. Into this foray comes the investment in a solution for inventory count that can not only keep a business on track, but also ensure these kinds of losses do not continue to occur.
Addendum 2: Inventory Management Best Practices (Achieving Balance in the Warehouse)
When speaking of overstocking and understocking, there are primary contributing elements that can be the cause of both, and when taking the first steps on the path to efficient inventory management, the key factors revolve around determining/pinpointing and preventing them. Interestingly, it’s the sales forecast and customer demand that are leading indicators to take into consideration here; as prediction tools, they’re very important for proper inventory level maintenance, yet it must be stressed that any inaccuracies in this area can significantly impact the management of merchandise.
Additionally, it has been concluded by experts like Brandon Levey of Business.com that when companies utilize multiple platforms or spreadsheets to keep track of inventory levels, it’s a problem. This, often times, has everything to do with the number of “channels” a company is entrenched in – a business may allocate one spreadsheet for online merchandise sold and another for “brick-and-mortar” inventory levels, but this scenario has the potential to create “informational silos” that may prevent accurate ordering and management. This is to say nothing of the confusion it can create among employees who are forced to use disparate systems.
However, once identifying these somewhat common problems, companies can use a number of key methods to battle inefficiencies and other issues concerning inventory management. Below are the top inventory management best practices when it comes to preventing out-of-stocks and overstock:
- The Market: Pay Attention to It – When assisting businesses with preparing for periods of peak demand while helping managers determine when demand may reach a plateau (or fall off it), monitoring the market is an ideal solution; however, it should be understood that this information is often weighed heavily for inventory management, and should ideally be included in forthcoming sales forecasts in order to ensure accuracy.
- Customer Purchase History: Take a Look at It – Focusing their scope on a business’ own sales levels is what inventory managers need to concentrate on, and taking a closer look at customers’ historical transaction data puts a spotlight on high/low periods of demand while allowing the company to stock merchandise to match. Here’s a good example: A manufacturer in the swimsuit business often sees its historical transaction data indicate a slow period during cold winter months, thus it will order less inventory to avoid overstocking.
- Marketing Efforts of the Company: Consider Them – When a business launches a marketing campaign but does not possess the inventory to back the increased demand levels that often follow, understocking can occur. As such, stakeholders, when managing inventory, are forced to take into consideration the business’ marketing campaigns. The answers to the following queries assist managers in a myriad of ways, while helping to ensure enough merchandise to fill orders (as a result of marketing efforts) is available.
- Which products are currently in the advertising spotlight?
- Which products have yet to be featured in a campaign for quite some time?
- Which products are currently on sale?
- Oversight Prevention in the Warehouse – Even a seemingly insignificant step like organizing the location of merchandise in the warehouse makes a big difference in these environments. Important to remember is that products in the most demand should be located in close proximity to the shipping department, with slower-moving goods kept in back. Not only will employees always know where to look, oversights will be kept to a minimum.
Addendum 3: Final Thoughts
Never overlook the traditional approaches of physical cycle and inventory counts – as a vital element of the inventory management process, it’s ideally completed with the assistance of a solution like Mobile Warehouse Inventory Collection Software. As one of the most innovative platforms out there, this allows warehouse managers to streamline the process to achieve overall count, as well as for count sheet creation and the ability to enter the count into the NAV module.