If there’s one thing that you absolutely need to get right when running a manufacturing business, it’s inventory management. Poor inventory control can lead to bad customer experiences, reduced sales, and tied-up capital. In conclusion, if you fail to manage your inventory properly, you’ll likely see problems in other aspects of your business, particularly finance and customer experience. To help ensure that doesn’t happen, we’ve put together some of the common inventory management mistakes manufacturers make.
Go through this list and see if you’re committing any of these blunders in your manufacturing business. And don’t worry we’ve also listed the ways to fix these mistakes.
Mistake 1: Falling out of alignment with demand
Accurate customer demand forecasting is the tricky part of many inventory management operations. While there is no foolproof way to predict all the fluctuations in demand with pinpoint precision, it’s possible to do so with a degree of accuracy. When forecasters rely on outdated data (thanks to excel spreadsheets) the likelihood of inaccurate reordering increases. This is one of the most common inventory management mistakes you may be making.
When this occurs, a business will not have enough raw material for finished products that their customers want to buy. The short-term impact will be felt in lost sales. The longer-term which is more damaging will be felt by a diminished loyal customer base. If your business cannot give your customers what they want then they will just go elsewhere.
Conversely, when a business over-predicts its inventory needs for the coming sales cycle, it runs the risk of ordering-in and building up inventory that is actually not needed. Apart from the ‘hidden’ cost of holding on to an obsolete stock, the paralyzing effect overstock has on a business’s cash flow is something all operations managers seek to avoid at all costs.
One solution is to set automatic re-order points informed by current, real-time data. Re-order points are simply intervals within the purchasing timeline of a business. They allow for minimum and maximum levels of inventory to be set. This way, a business will always know when inventory is approaching the point of overstock or understock, and timely re-supply can be arranged.
An integrated inventory management software system will provide aid in ensuring that a business has the right amount of inventory in stock. Not just at present, but also for the weeks ahead.
Mistake 2: Giving a Complicated Software To An Untrained Staff
We know you don’t have any bad intentions when it comes to your business or your employees. Inventory is an important asset and for SME businesses it is quite natural to think of shifting to an ERP system when they start thinking of digitization. But ERPs are complicated and instead of solving inventory problems, you’ll have to spend way more time getting yourself and your employees comfortable with the complex software. Average ERP implementation takes about two years. SMEs cannot afford to give so much time to any software. So they should instead try an integrated platform that is easy to use and affordable and also provides proper onboarding to employees.
It is always a smart move to invest in your people. When your team is able to utilize the full power of the technology at their fingertips, the effects on the ground and on the bottom line will be very noticeable.
Mistake 3: Having too much inventory on-hand
Warehousing costs are expensive. Like, crazy expensive. In industrial areas, you can end up paying around lakhs for space. The bigger your operation, the more of a drain on cash resource storage space can become. So having too much inventory on-hand is a real problem for any manufacturer. Good inventory management results in items spending less time sitting in the warehouse before being sold. And this means reduced costs for storing them.
Setting a clear reorder point for each raw material allows SME owners to know exactly when to order new stock. This means you should never have too much on-hand at any given moment. It is a specific point that acts as a trigger as soon as stock has diminished to that certain level.
It’s important to consider the lead time for new stock to be delivered when setting reorder points. Especially in these difficult times when logistics can get a bit tricky. For this, an inventory management software that gives you alerts to restock and also alerts you when you are about to overstock.
Make No Mistakes
Effective inventory management is about having the right product/raw material in the right place, at the right time. Now that you’ve seen all the inventory management mistakes you are probably making, it’s time to take action. Streamlining the process with a reliable integrated inventory management solution will significantly reduce mistakes and improve operations. One such web-based solution is TranZact. It is an affordable inventory solution that lets you track all your raw materials and products in your warehouse. It is the best choice for SMEs because of its seamless integration with Tally, Google Sheets, and dozens of other solutions. Also, it provides an enormous library of training and support resources 24*7..
When choosing an inventory solution, determine these things:
- Types of raw materials and products you work with
- Features you need in the solution
- How easy/difficult to use is the solution
- Budget for possible investment.
Make a wise choice!