Myths courtesy of Industrial Supply Magazine
In this article we explore 4 common inventory myths that may be costing you money, and examine how to address them with proper inventory management software.
(Of course, the software will need to be properly implemented as well – but that’s another blog post.)
Myth 1 – We can’t have stock outs
The importance of being able to fulfill customer orders in a timely fashion is obvious – after all, if you can’t they will likely look elsewhere. However, this doesn’t mean that you need to carry excessive and costly levels of inventory. Any decent ERP inventory software system will allow you to manage purchasing, taking into account lead times and seasonality, to help forecast demand. Responding to customer demand is an ongoing worry, and as such, it is great to have automated purchasing to reduce this worry.
Myth 2 – If we buy more, we get a much better price
Buying more up front can save you money but it also comes with substantial cost. Giving up the cash up front for a discount means you could end up in a cash pinch if your cash flow is tight. You will also incur additional carrying costs with extra inventory that you won’t likely sell for a while. Here again, forecasting will aid you in determining how much extra inventory you should be willing to take on. If you know, for example, that it will take you 2 months to sell a large shipment of inventory, perhaps you will consider the discount. If, however, past sales indicates that it will take you 14 months, perhaps the discount just isn’t worth it.
Myth 3 – Inventory is an asset
Money tied up in inventory cannot be easily accessed – it has to be sold first. Having substantial inventory is not beneficial and serves no direct benefit. Using software to identify dead stock can help you get rid of inventory that’s taking up space on shelves which could be better used to temporarily house fast-moving products or for potential new products. Period inventory audits can easily be performed with a properly integrated inventory/accounting system to ensure you only put money into the products you are going to sell.
Myth 4 – Inventory variety appeals to a variety of customers
Having a variety of products allows you to serve customers across more industries/business types. However, doing so also greatly increases the amount of inventory that you carry. The question is: do you sell enough of these “other” products to warrant tying up money in your inventory? Specialization is often a better strategy to prevent trying to make everyone happy (hint: it’s nearly impossible to make everyone happy and remain profitable). Here again, in-depth reports can aid you in determining which products serve your business the best and allow you to make strategic decisions about your specialization.