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Inventory Management: the Top Business Stumbling Block

Poor inventory management is a major reason small businesses go under. It’s a revenue-losing, customer-irritating snarlup waiting to happen.

As a small business, you don’t have the clout to vendor manage the way big organizations can. You’re at the mercy of vendors when it comes to delivery and price. Since you have little operating capital you’re always under pressure to choose the cheaper option, leading to bulk buys or other seeming economies with problematic secondary effects. The ‘just-in-time’ warehousing of large concerns depends on both sales prediction and vendor management; without these you’re forced into a less-efficient model.

None of this means the outlook is permanently grim. But it doesn’t explain why almost half of small businesses have no inventory tracking system in place (Source: WaspBarCode.com, 2015).

The trouble with poor inventory management is twofold: one effect is directly on inventory and cashflow, the other is on customer service.

Inventory

When inventory isn’t being managed, the result can be capital tied up in assets that aren’t making any money, in this case because they’re sitting around in warehouses. At worst this can actually result in total waste if the items are perishable, or otherwise time-limited, like event-related merchandising. Even if inventory is being cleared but there’s a large overstock, it still represents a poor use of business capital.

Customer service

Inventory management is vital to adequate customer service. If your inventory is well-managed, your time to order fulfillment will be low and customer satisfaction will go up. In a way the best customer support team is the one that’s never used, because customers find buying from you so simple and easy. Some slack in inventory helps you deal with returns, and fast returns handling is key to customer satisfaction; but too much eats into profits and agility.

So what’s the solution?

For most small businesses the solution is to implement inventory management software. Using software to track inventory makes sense: you’ll get monitoring, analytics and forecasting so you have some solid inventory data to base ordering off, and you don’t have to rely on sales figures that don’t always match (for instance, because of returns). Like the bulk of business software now, there’s a cloud-based sector that’s thriving offering inventory management on an as-a-service basis, while an older generation of IM tools continue to bring self-hosted inventory management to enterprise.

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