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The Importance of Correct Inventory Levels

The problems caused by inaccurate stock levels are many and they are well worth considering as they can impact your business negatively.

Inaccurate inventory can lead to a number of issues for a business including increased operating expenses, increased cost of capital, lost sales, issues with fault identification and insurance, as well as increased warehousing costs.

Here are the 8 business areas that will be affected from incorrect inventory levels:

  • Money tied up on the shelves. By holding excess stock to cover poor stock management we drive up investment and operating expense due to the cost of capital.
  • Lost sales due to stock-outs: In many cases the customer will not buy another product. If it’s a trend, customers will not come back.
  • Obsolescence increases: Trying to hold stock of items on the shelf to account for statistical fluctuations means there is also a lot of stock to sell at a discount when new technology is released or when it approaches its expiry. Most such stock will need to be sold well below cost to dispose of it – many items will simply be scrapped.
  • Late identification of faults: If the choice is made to produce and keep 6 months’ supply of an item on the shelf it can be up to 6 months before a faulty product is identified. After that time it can be very hard to either identify the cause of the problem if it’s something produced in-house, or to return it to a supplier. A manufacturing problem that could have been remedied after 100 faulty items now has stock levels of 10,000 faulty items.
  • Insurance Costs: Any business should be well insured, but it doesn’t make sense to be insuring a million dollars’ worth of stock when there is only $500,000. A bigger problem that may only become evident in the event of a claim is that you’re under-insured.
  • Theft and Losses: What is actually happening to your stock, why are your costs so high? If you’re not keeping accurate tabs on what your stock should be, how will you know when things go missing?
  • Distrusting the System: How many times have you called a shop and asked for an item only to be told “The computer says we have one in stock but I’ll have to go check on the shelf”. The inventory system exists to save this very thing happening. If your system can’t be trusted then it’s virtually useless.
  • Warehousing Cost: If you’re paying to rent space you don’t need, you’re paying too much.

Accurate control of inventory is essential in any stock-holding business but with hundreds of SKUs and a lack of data visibility keeping track of what inventory levels are, and what they should be is a daunting task it’s easy to feel overwhelmed.

There are many solutions to inventory control but a solution that can grow with your needs and integrate with your existing software is essential. Unleashed’s inventory management system has been designed to meet the needs of small medium and large business and integrates flawlessly with your other software. 

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