Five Common Inventory Management Mistakes To Avoid

by Sanjay Panjwani - VP Development,Managing Director, BatchMaster Software Pvt. Ltd.

Founded in 1983, BatchMaster Software helps emerging and growing formula-based manufacturers worldwide streamline their operations and scale production, while reducing costs and complying with changing customer demands. The company delivers industry specific ERP solutions for Food, Beverage, Nutraceuticals, Life Sciences, Cosmetics, Chemicals, and other process manufacturing industries.

Inventory is one of the biggest assets of manufacturing organizations which can turn into a huge liability if not managed appropriately. Involving huge investments, mismanagement of inventory leads CXOs of many organizations to shift their focus from enduring business opportunities to coping up with profit-shrinking issues. Managing inventory is a daunting task irrespective of the size of an organization. Failing to manage it well leads to chaotic situations in manufacturing plants and warehouses, which in turn disturb the whole supply chain of the products. These issues also result in locking up of cash and slap extra costs on an organization. Below are the major mistakes that cause inventory crisis:

Erroneous Demand Forecasting

A wrong sales forecast results in imbalance of demand and supply resulting in inventory crisis. Projecting demands based on practical analysis leads to adequate ordering of raw materials and scheduling material production in advance. A wrong forecast results in one of the two situations – abundance or shortfall. Abundance leads to excess of raw materials, finished products and its associated costs; shortfall results in inability to fulfill customer orders and loss of sales.

A number of reasons affect the accuracy of sales forecast. One of the primary reasons is not adapting a suitable method of determination. Determining what products to be included in the forecast need meticulous considerations. For instance, demand for sunscreen based creams/lotions is comparatively less during winter season. The management must not ignore seasonal, preferential and competition factors while forecasting. The projections must be based on past data, unavailability of which can make it difficult to understand the patterns of change in demand over a period of time.

Failure in Depicting Demand Trends

Another on-going process that helps businesses stay profitable and cut on inventory wastage is identifying demand trends. Many organizations continuously invest in resources to identify current demands and preferences of customers. Failing to do so leaves businesses with huge unsold stock or shortage of stock, consequently recovering only a portion of investments, uncovering the purchases made and adding up on space rents, handling costs and more. An in-depth trend analysis helps businesses anticipate upcoming trends even before their competitors. Failure at this paves way for competitors to jump in and grab the opportunity.

Lack of Common Database

Lack of common database is a drawback that should be resolved at the earliest. A company where each department has its own database can be seen as a cart with multiple horses pulling it in different directions. Where does it reach? Certainly nowhere!  A disintegrated database creates room for errors and ambiguity. How much is in store, what is to be ordered, how much to order and when to order; answering these critical business questions become intricate and time consuming not only for multi-location businesses but even for a single-facility business.

Resistance to Adopt ERP System

Assume a carpenter working without a Saw. In the world of automation, managing inventory without an Inventory Management System is equivalent to such a carpenter. This results in delayed output, data with errors and above all disheartening results.  Opting for an ERP is even better as it not only manages your inventory but integrates various departments. It facilitates sharing of a common database making flow of information fast while boosting its accuracy. Updates from one department to another are shared in real-time making business processes jet-fast compared to what it takes in exchanging paper based files between departments.  Availability of dashboards provides a unified view of what has been ordered, what’s in store, what is to be shipped and more in both single and multi-location environment.

Resistance to Adopt New Technologies

Present systems have additional benefits of being accessed from multiple places and are operational on multiple platforms. Use of handheld devices, barcode scanner, and RFIDs help managing business inventory on the move and execute transactions irrespective of time and place constraints. Integration with EDI, Drop Shipping Automation, KPI analysis tools, SaaS support helps a business to better analyze and manage inventory. It makes it easier to order inventories from multiple vendors, better utilize warehouse space, as well as simplifies distribution to various channels. By staying away from embracing these trending technologies a business compromises on ease of operations, material and resource optimization, accuracy and quality and eventually Return on Investment.