How Can My Business Avoid Costly Inventory Problems?

by Debi Enders

How you manage inventory can significantly impact your success. Using proper methods and techniques will allow you to forecast supply and demand, ensure accuracy of deliveries and shipments, and reduce costs and headaches related to over- and under-stocking.

Here are three common errors and ways to combat them.

Mistake #1: Manual or no inventory tracking – A recent study found that 43% of small businesses fail to track their inventory or do so using manual processes. Such an approach to managing inventory can result in inaccurate counts and second-guessing.

Solution: Automated inventory management systems make it easy to track goods from initial order to final sale. Such systems offer a snapshot of your inventory in real-time and help you know when and what to order.

Mistake #2: Inventory waste – Some products sit on shelves long after they have expired, gone out of style or no longer are in-season. “Dead” stock that is pushed to the back of shelves can be costly, resulting in additional storage expenses, space issues and lost profits.

Solution: The First-In/First-Out inventory method is one way to combat inventory waste. With this approach, the stock you receive first (first-in) -- not your newest stock -- is sold first (first-out). To further reduce excess inventory, think outside the box. In addition to selling products at a discount, consider bundling multiple products together as a unit, using them to create new products, or trading stock with competitors.

Mistake #3: Inaccurate forecasting – If you have too much or too little inventory, the problem can often be traced to inadequate forecasting.

Solution: Improved market intelligence, combined with a reliable inventory management system, can help you match supply with customer demand. Doing so requires knowing how to predict production lead times and to identify reorder points.

THE BOTTOM LINE: Strong inventory management not only saves money, but also can help increase sales and build a stronger brand.

Debi Enders (debi.enders@commercebank.com) is vice president, small business banking at Commerce Bank.