Inventory is a very significant part of the manufacturing and retail business, to let business flow properly an optimum level is a must. There could be many drawbacks of not managing inventory.
When you are running a superstore or you are in the business of manufacturing products you have so much inventory around you. Each product is different and so is the demand of every product very different. Moreover, many products are based on seasonal changes, and looking after inventory appropriately is very essential. Lack of inventory maintenance may cause a lot of problems for a business and these should be avoided at all costs.
Drawbacks of Excessive Inventory (i)
In a business when too much of the inventory is tied up, there are a lot of problems that a business may face and these may comprise of the following:
- Your cash may be tied up with the inventory for a long since you have already purchased it and kept it in the warehouse. The stuck cash could have been used in a better way if you have had not tied it in the inventory. Cash flow problems in a business are always very annoying and hinder many activities.
- When you have invested in a huge amount of inventory you also need a place to keep it as well, an excessive amount may require extra space, and when you don’t have enough space in your warehouse a rental space might be needed that is going to add an unnecessary burden on your shoulders.
- Holding too much inventory may cause profits to reduce, your sales are less and your closing stock is high also holing charges on that inventory may add to expenses, all this reduces your profit and you have to suffer from your earnings too.
- Stock very quickly may go towards being obsolete, when you have held it for a long time either it will perish, expire or turn obsolete then you either have to sell it cost to cost and sometimes even below cost all this will only have an impact on your business’s profitability so make sure to consider not keeping inventory for a long time.
- When you hold a huge amount of inventory in the business you above face a lot of pressure from the system, the patterns of demand from the customer may change now and then and since you don’t have a new product because of an excessive older one you are unable to meet the customer’s demand and hence may feel pressurized in the industry.
Why Invest in a Good Inventory Management System? (ii)
The inventory management system is software that allows you to make the best use of inventory management practices for your business. These days many providers offer this service and with different options, you can maintain optimum levels of inventory in your business.
Optimum Inventory Levels
The main aim of a business is to hold optimum inventory. It shouldn’t be too less that you have to refuse a customer nor should it be too high that it goes obsolete. Inventory management software allows business to understand their requirement for inventory in a month and allows them to hold the same level. They offer expertise in assessing the demand and supply and hence bring about a match between both that makes business hold the right level of inventory.
Offers Cost Control
Cost control is one of the most beneficial aspects of inventory management software, it allows you to have a report in assessing which product of yours is performing well. This way a business would be able to invest in the product that amounts to be the one with the highest demand and avoid investing in the ones with the lowest demands. This activity will keep control of the cost of investment of stock in the business.
Schedules Time Deliveries
There are many manufacturers and sellers of the same product and when you are late in the delivery of a product to your customer due to non-availability, there is a chance that you might end up losing your customer. Hence you must have sufficient products in place to cater to your clients. Inventory management software is among the types of software that notifies you if the level of inventory goes below the threshold so that you can prepare for the upcoming demand.
Helps in Stock Counting
Stock counting is a very important aspect of a business in the retail or manufacturing industry. The need of stock counting is a must before preparing for the financial statements. However, when it comes to doing the job manually you may find it to be a very time taking task and may have human errors. However, when you have inventory software installed you don’t need to have a separate activity for this, and when you enter all the details of sales and purchases in the software the stock count is performed automatically. Every product that you hold in your warehouse may be assessed at any time because the details are available right away.
Time Saving
When you shift to an automated system it is very obvious that you will be able to save much of your time spend on inventory management. It eliminates the wasting of time and offers more productive measures to exercise on and make the best use of available resources. Although the pricing may be a problem for many businesses you can compensate for it by hiring less staff as you won’t be needing many employees after implementing this software.
Inventory management software is one of the finest choices to invest in especially when you operate a business on a large scale. These days everyone is looking forward to the placement of such software and is benefiting out of it hence to experience growth in a business such automated practices must be introduced and manual ones should be eliminated. Also, you will be able to cover the drawbacks of inventory holding that have been discussed by ordering the required level only and that too featuring the demand of your customers.
- https://teci.com/news/5-negatives-effects-of-holding-too-much-inventory-on-hand
- https://retail.economictimes.indiatimes.com/news/brand-solutions/how-to-streamline-your-inventory-management-processes/69859000