5 Big Inventory Mistakes and How to Avoid Them

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Date: 06 May 2021


5 Big Inventory Management Mistakes and How to Avoid Them


Inventory is one of the most critical arms of your business. Whether you deal in auto parts, dog food, clothing, or consumer electronics, every industry must do proper inventory management. Businesses that fail to manage their inventory lose a lot of money. If you can manage and track your inventory better, you can avoid overshooting the margins and free up capital to run other business areas.

Here are the top 5 common inventory management mistakes that you can avoid.   

  1. Excess stock and product variations

  2. Not taking inventory regularly

  3. Using a spreadsheet for tracking inventory

  4. Improper Inventory Management

  5. Failing to track performance


Excess stock and product variations
 

Ordering many products might sound like a good idea, but it only adds to your inventory and increases costs. You may order a lot of products because they are trending but remember, trends change quickly. One of the errors that businesses make is that they do not keep track of the sales and projected growth. In this way, they end up ordering more than what is required.

 

Similarly, having too many product variations can also be a colossal mistake and add to your overall cost. Buying the same product type but with different SKUs can be confusing and create inaccuracy while doing an inventory check. One of the best things you can do to avoid this is to buy only a few products from fewer vendors. This will help you keep an accurate track of your ordered products and control unnecessary expenses. 

 

Not taking inventory regularly.

 

Companies need to take inventory frequently. Doing a complete inventory is exceptionally crucial, but many companies are not closed to getting that done. Some only focus on taking stock once or twice every year. This is not recommended. Once-a-year inventory tracking will not help you look at any issue areas. Not doing inventory also leads to poor forecasting and analysis of seasonal trends, which may affect your business badly. To stay ahead of your competition, it is crucial to understand the trending products and what your customers are constantly looking to buy.

 

If you do your inventory management frequently, it will also help you understand and be prepared for the upcoming trends. This will assist you in planning and preventing from over or underspending.

 

Using a spreadsheet for tracking inventory  

 

It is an outdated idea to use spreadsheets for tracking inventory. Many companies rely only on spreadsheets to manage their inventory. Lack of automation can cause many issues. 


Tracking your inventory solely based on spreadsheets increases the chances of inaccuracies. Manual data entry is time-consuming. It needs to be constantly updated, and if not, it may lead to overlooking data that can cost your company a lot.


One of the best things you can do to avoid this mistake is to choose a competent inventory management system. It can offer centralized tracking and management of products. There are various inventory management systems, and you can select one by comparing these based on their features, cost, efficiency that suits the specific needs of your business.  

 

Improper Inventory Management

 

A smoothly and efficiently functioning business is the result of proper management. You do not want to hire a staff that is unfit for a department or role. It is extremely crucial to employ the right people for inventory management. Accuracy, timeliness, and effective management are critical to competent inventory management. You can hire only two to three people who can closely track the inventory and have the best knowledge about the department for accuracy. If you employ a lot of people for inventory management, it will lead to more significant errors. Employ only the trusted and most-suited professionals to know what the company goals are and adhere to the same. It is equally important to train your staff for the role and fully aware of the company’s specific targets and requirements. 

 

Failing to track performance 

 

No business can run effectively without proper performance tracking. This is the same with inventory management too. If you do not track the performance of your inventory, you will be unable to forecast the inventory level accurately. To begin with, three of the most critical inventory metrics are turnover, days to sell, and holding costs.

 

Turnover: The total number of times inventory is sold and is back for restocking in a given time. A high turnover means the product is selling better. A lower turnover rate is due to a lack of product demand, or the business cannot fulfill the demand. In both cases, your business will lose money.

 

Days to sell: It is the average time duration taken to sell a product. 

 

Holding cost: It is the amount required to store an unsold product. 

 

Days to sell and holding costs go hand in hand. These two metrics are critical to understanding how much money you are losing when the product is not sold. 

 

Tracking the performance of your inventory will help you understand the actual money you are losing. This tracking also allows you to plan for future spending, which helps in controlling costs. 

 

Conclusion

All in all, all these mistakes are easy to track and easier to avoid if you are more careful. As a business owner, it is best to avoid these missteps by moving to an automated, centralized inventory management system to help you manage your inventory better.