How to Overcome Inventory Inefficiency

Inventory inefficiency can have severe financial consequences for your business. It can lead to stockouts, which contributes to missed sales and lost customers. According to a Signifyd report on the state of commerce, 40% of e-commerce customers will leave their go-to brand for competitors if items aren’t in stock.

It can also lead to overstocking, which ties up capital in stock that could be used in other business areas, such as marketing and operations. That’s not to mention the increased holding costs, which can erode profits.

The good news? It can be overcome with the right inventory controls. We will show you how in this guide.

P.S. If you’re short on time and want to learn the top 4 ways to avoid inventory inefficiency today, scroll to the last section.

Inventory inefficiency refers to poor inventory management that leads to various issues, including insufficient inventory levels, waste, higher carrying costs, and various operational challenges. Examples of inventory inefficiencies include:

1. Overstocking due to inaccurate demand forecasting, inefficient ordering practices, and outdated technology makes it hard to adjust orders based on demand.
2. Understocking due to inefficient demand forecasting and poor safety stock management.
3. Poor forecasting because of forecasting methods that aren’t data-driven.
4. Human errors due to a dependence on manual processes where people perform tasks using physical methods like counting and recording stock in Excel spreadsheets.
5. Limited visibility into stock which makes it hard to track and locate inventory in a warehouse, often due to the absence of a proper warehouse management system.
6. Inefficient warehousing practices caused by poor organization, outdated technology, and a lack of automation.
7. Production bottlenecks because of inadequate capacity planning and machinery breakdowns.

Improve inventory management and your bottom line by implementing these strategies:

Invest in an inventory management system (IMS) for real-time data

An IMS is a digital platform for managing and tracking inventory. Using software, you can streamline various processes to improve inventory control, including stock monitoring, order processing, reporting and analytics, forecasting, and demand planning. All inventory-related information is easily accessible from a centralized dashboard.

Unlike manual methods, an IMS provides real-time inventory tracking and automation. Real-time tracking offers visibility into stock levels so you can accurately track movements as they happen and make swift business decisions (e.g., how much and when to order) based on current data.

Automation, in turn, improves the accuracy and reliability of inventory data because it minimizes human input and the chance of errors. You can automate various tasks, including:

• Order processing. An IMS can automatically generate purchase orders when inventory reaches a specific reorder point to help maintain optimal inventory levels. It can also send customers automated order confirmation details, tracking information, and status updates.
• Reorder point calculations. An IMS can automatically calculate and adjust reorder points to prevent over or understocking.
• Item identification. Integration with barcode scanning and RFID technology is possible, allowing for quickly identifying inventory items. This speeds up processes like order picking and improves inventory accuracy.

When choosing a suitable IMS, be sure to look beyond price and consider factors like hidden costs, ease of integration, features, return on investment, ease of use, and scalability.

Use predictive analytics for accurate demand projections

Predictive analytics can help you achieve accurate demand forecasts, maintain optimal inventory levels, optimize inventory turnover, and improve supply chain efficiency.

It’s an advanced inventory forecasting technique that uses predictive models to predict everything from future inventory needs and supply fluctuations to optimal reorder points and lead times for delivery and procurement.

It involves analyzing market trends, consumer behavior, and historical and real-time data to arrive at these predictions. This technique is especially useful for seasonal demand planning, where predicting accurate demand and maintaining optimal stock levels is a delicate balancing act.

Enhance collaboration across the supply chain

Transparent and better communication among all stakeholders in the supply chain, like manufacturers, retailers, and distributors, helps improve supply chain efficiency and ensures inventory levels remain aligned with demand.

Here are some ways to improve communication across the supply chain:

• Create a cross-functional team with representatives from different supply chain stages (e.g., manufacturing and distribution) to encourage a holistic approach to problem-solving.
• Create clear communication protocols for how everyone in the supply chain will exchange information, including:
  • Guidelines for meetings, e.g., the cadence and who will attend.
  • Processes for feedback and improvement suggestions. It’s crucial to include feedback sessions to help create a culture of continuous improvement.
  • Procedures for sharing regular updates with everyone.
  • Rules for document sharing. Will you use a centralized portal, document management system, or something else?
  • Communication channels. What forms of communication will you use—email, video conferencing apps, or a combination?
  • Measures for securing information. How will you maintain data integrity and confidentiality?
  • Escalation paths for addressing problems when standard protocols don’t work. What is the escalation criteria? Who are the designated contacts for handling matters?
• Use the right technology. For example:
  • A centralized supply chain portal for relevant stakeholders to easily access information and documentation.
  • Remote collaboration tools like Microsoft Teams, Slack, and Google Workspace for real-time messaging, video conferencing, and real-time document editing.
  • Supply chain management software for collaborating on procurement, production, and distribution.
  • Planning and forecasting tools for working together on demand forecasting, inventory planning, and production schedules.

Improve warehouse management

There are several ways to improve warehouse management and inventory efficiency.

The first is to optimize the existing space. For instance, you can better use vertical space by installing different pallet storage methods like single or double deep racks.

These pallets can help you better organize and categorize inventory, making it easier to track, locate, and manage it. Well-organized pallets also allow for easier product access, which improves the order-picking process, making order fulfillment more efficient.

The second is to redesign your warehouse layout, which is the arrangement of different warehouse elements (e.g., workstations and storage racks) that affect the flow of inventory in a warehouse.

For instance, you can use warehouse management software to pinpoint products that customers frequently buy together and reorganize workstations to reduce walking times between stations and optimize workflows.

The final way is to adopt warehouse automation—technologies like automated storage and retrieval systems and conveyor systems—that optimize processes and minimize human input. Decathlon, for example, managed to increase its storage capacity by 20% by deploying autonomous mobile robots (AMRs) and goods-to-person (G2P) robots.

There’s a lot to lose if you don’t prioritize inventory efficiency: customers, sales, and profits. So be sure to avoid these inefficiencies with the right strategies:

• Invest in inventory management software
• Use predictive analytics
• Enhance supply chain collaboration
• Improve warehouse management

You may also want to work with a technology partner that helps bring it all together—from inventory management and data analytics to supply chain coordination and warehouse automation.

Fishbowl is the industry’s most flexible and popular IMS, with the ability to connect and integrate with core business solutions, like QuickBooks for accounting, FedEx for shipping, and Shopify for eCommerce.

Not only does Fishbowl offer real-time inventory tracking for visibility into stock levels, but it also offers automation features for routine processes, like reordering, so you can minimize errors.

You also get demand forecasting capabilities for analyzing data so you can make informed inventory decisions, barcode scanning support for improved tracking, and reporting tools that let you generate reports on sales trends and stock movement to optimize inventory management.

Book a demo to learn more about our inventory management software, which has been consistently rated as the top IMS for QuickBooks over the past two decades.