What is the Significance of Accurate Inventory Levels? | TranZact

Apr 19, 2021 in Inventory Management



Did you know that over 43% of small businesses either don’t put any effort in tracking their stock levels or use manual processes to do so? It's an alarming figure because effective stock management is crucial for any successful business. Poor stock management can have ripples of repercussions throughout the organization. So maintaining Accurate Inventory Levels helps hugely in making your business more efficient. 

A person inspecting and managing the inventory

The stock items sitting idly on warehouse selves will consume all of the space. Further, adding up to maintenance costs, risks, wastage, and susceptible theft chances from staff.

Conversely, not having enough raw material will put your business on the backfoot. Because you may not be able to keep up with your sales. Additionally, it will force your customers to buy from your competitors.

Let’s look at some of the key reasons why accurate inventory levels are so important.

Preventing understocking

Running short on inventory is a critical error. Stock-outs not only directly cause a loss in business sales, but also erode customer loyalty. Failing to fulfill orders due to insufficient stock is an easy way to compromise your business’ positive image.

Accurate inventory levels prevent understocking by ensuring that staff has the right signals to reorder inventory, and by maintaining appropriate levels of safety stock. If staff follow a reordering rule, such as order more after inventory drops below 500 units, or if reordering is automated, it is critical to ensure that the inventory count that triggers this process is accurate. If the number of any particular item in stock is overestimated and reordering does not occur until inventory drops to 200 units, the business risks not being able to get the required inventory in stock in time. In this example, assuming the bolts are a critical component, the particular risk is needing to stop the entire production line until more stock arrives.

Preventing overstocking

Likewise, accruing too much inventory can have negative impacts on your business's bottom line. Procuring inventory is often expensive. Purchasing needless stock costs business money that may be better invested elsewhere.

Stock that sits waiting in a warehouse is held at your own risk. The likelihood of damage increases with the amount of stock that is owned. Additionally, costs such as storage and handling increase with inventory – and can readily add up. Although holding some safety stock is necessary to prevent stockouts. it is important to keep this buffer stock at reasonable levels. Clearly understanding the amount of stock on hand is important to prevent an unnecessary build-up of excess stock.

Evaluating sales performance through inventory levels

Accurate inventory levels are also crucial to tracking meaningful sales performance. Understanding the sales performance of each product is important for identifying poor-performing products. It is also important for planning for seasonal and occasional spikes in demand. Keeping comprehensive records of sales and inventory movements is useful to figure out which products are selling well and which are lagging behind. Recording inventory levels over time seems like a lot of work but provides a useful source of business intelligence.

Read More - The Importance of Keeping an Accurate Inventory

Way Forward

To conclude, accurate inventory control is vital and imperative for any business’s survival. Without accurate tracking of inventory, business owners will never have a true account of how the business is doing.

Businesses dealing with stock have to better track their stock inventory accurately, to keep ahead of the competition. Stock control helps to keep a constant flow of satisfied customers. It also improves the working environment and flow of businesses. It results in more sustained growth continually. TranZact helps SMEs manage inventory through their integrated business operations platform. . 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.

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.

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.

Read More - Inventory Management: Ultimate Guide for SMEs

Make a wise choice!


TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch. This also streamlines your Inventory, Purchase, Sales & Quotation management processes in a hassle-free user-friendly manner. The software is free to signup and gets implemented within a week.