Managing your inventory is probably something that gets your blood boiling. It’s a tedious task with real business consequences if managed incorrectly. Bad inventory management can lead to slower order fulfillment, which extends your cash flow cycle of money going out of your account and money coming back in. It can also saddle you with many other costs, such as higher interest rates from vendors and the inability to spend money on operational costs as your money is tied up in inventory. However, it’s not just money that is impacted. Customer service is often affected with customers having to wait for a product or go somewhere else to find it. This can lead to a staffing increase, as it takes longer to find products and longer to deal with those customers affected by the stock issues. And don’t forget the regulatory and environmental risks that you may have with obsolete inventory that needs to disposed of.
But fear not! Inventory management doesn’t have to be costly or complicated. It just has to be organized. Here are five common mistakes entrepreneurs make with their inventory, and how to solve them.
1. Too Much Inventory
Overspending on inventory is easy. But it’s not a real way to offset the fear of being out-of-stock for customers. While buying volume can reduce the cost per unit, it also means that your cash flow is restricted until those items have been purchased. It’s not just the cost of the item itself. The cost of storage or warehousing can also be high – property, electricity, keeping things the right temperature, etc. And if you don’t sell it at the right point in time, you could end up marking the product down and discounting to get rid of it.
So how do you fix it? Start to make predictions of how much supply you’ll actually need and when. The best thing to do is look at previous sales. Look at it month by month to spot any trends or seasonality. Identify the less obvious patterns as well as the month-end spikes. If you’re just starting out and don’t have data to look at, start investigating your competitors.
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