Common Inventory Management Problems- Part 1

A successful business relies on many factors, one of which is a reliable inventory management system. Inventory management consists of everything from accurate record-keeping to shipping and receiving of products. Inventory management that is properly maintained can keep a company’s supply chain running smoothly and efficiently. However, there are many common inventory management problems that can occur.

Inventory management problems can interfere with a company’s profits and customer service. They can cost a business more money and can lead to an excess of inventory overstock that is difficult to move. Most of these problems are usually due to poor inventory processes and out-of-date systems.

There are a number of problems that can cause havoc with inventory management. Some happen more frequently than others. Here are some of the more common problems with inventory systems.

1.      Unqualified employees in charge of inventory. Too many companies put people in charge of their inventory distribution who either don’t have enough experience, are neglectful in their job, or don’t have adequate training. No matter what kind of system is used, companies need to pay closer attention in overseeing their inventory management and making sure employees receive proper training.

 2.      Using a measure of performance for their business that is too narrow. All too often companies will evaluate how well their business is doing. The processes they use are not wide enough and do not encompass all the aspects and factors in the company. Many areas get overlooked and can lead to either inventory shortages or inventory stockpiling.

 3.      A flawed or unrealistic business plan for a business for the future. To predict how well a company may do in the future, you have to collect enough data and accurately analyze it. The downfall of many companies starting out is that they give an unrealistic assessment of a company’s growth. This affects inventory management because if a company predicts more growth than they actually experience, it can lead to an overstock of inventory. The opposite is true if forecasters do not predict enough growth and are left with not enough inventory.

 4.      Not identifying shortages ahead of time. It happens all the time. A business needs a number of products or materials but discover that they do not have enough in stock and must re-order. Waiting for the shipment to come in can slow down the supply chain process. Not having enough product in stock to meet customer demand can lead to bad customer relations. A supervisor in charge of inventory management should look over their inventory on a regular basis to make sure enough product is in stock.

 5.      Bottlenecks and weak points can interfere with on-time product delivery. This means that if too many orders come in for outgoing shipments and do not get handled in an efficient manner, they can build up, or ‘bottleneck’. This slows down deliveries. The same is true for any weak points in an inventory management system. Weak points slow down the system and can stop it altogether.

 

6.            Falling victim to the “bullwhip effect”. This is an over-reaction by a company to changes in the market. As the demand of a market changes, a company may panic and order an overstock of inventory, thinking the new market conditions will move the inventory. Instead, the market stabilizes and the business is now left with a surplus of products that just sit in the warehouse, taking up space and not making money.

 

Please watch for Part 2 of this posting later this week.

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With more than 20 years of Inventory Management experience, my mission is to help companies find the “LOST” cash in their warehouse.  I accomplish this by developing customized solutions that will make businesses more organized, productive and therefore more profitable.

 

For more information on my services, please visit my website, www.jitsolutionsgroup.com or visit my LinkedIn profile: www.linkedin.com/in/inventoryjoe/.