3 Ways a Poorly Managed Inventory Can Ruin a Business

Dustin Caudell
Mon, Mar 6, 2017
Poorly managed stocks of inventory can devastate a company's bottom line.
Poorly managed stocks of inventory can devastate a company's bottom line.

Do you know how much inventory you have, whether it's in your office, warehouse or in the field? You should. Inventory management is a top business process that, if not tracked correctly, can irreversibly damage companies.

As you might expect, this can be detrimental to a business' bottom line. Let's discuss several reasons poorly managed inventory can ruin companies:

1. It's Costly
Employees make mistakes all of the time. But do they always know when they're making them?

Ray Panko, a professor of the College of Business Administration at the University of Hawaii, suspected businesses were too confident in their manual data tracking capabilities, and he wanted to test their overconfidence. What he found supported his original theory.

What he found supported his original theory.

Panko studied groups of students who were tasked with completing a variety of spreadsheet assignments. One group he warned that spreadsheet errors were common amongst other students who had completed the same tasks. Despite the warning, a group of students working alone had completed the projects and predicted their error rate to be 18 percent. It was actually a whopping 86 percent.

If companies use spreadsheets to track inventory, this can be a serious problem. Going back to Panko's research, he noted that the Cell Error Rate for many commercial and research spreadsheets is between 1-5 percent. Imagine a company that uses hundreds, or thousands, of cells to track products. Just a few incorrect cells could be the difference between a business thinking it has a few extra items or hundreds. Not having enough in stock can result in delayed shipments and lost sales, and too much stock can increase storage costs as well as the chances that product deterioration occurs, according to the Houston Chronicle.

Using a mobile data collection solution can significantly limit - if not completely eliminate - manual data entry mistakes. While purchasing and integrating the solution into a company may cost a bit of money, the amount of money the system can save could extend into hundreds, if not thousands, of dollars.

2. It Hampers Productivity
Manual data capture can waste precious time for a number of reasons:

  1. It can take an enormous amount of time to manually enter data and then transfer that information around a company.
  2. It takes time to verify that entered data is correct.
  3. It often takes too long to track down critical information for inventory management purposes.
  4. If a mistake is made, it could take hours for employees to find where the error is if the error is even noticed.

How much time is lost? Potentially weeks.

For example, take the Bay Area Air Quality Management District, according to Wasp Barcode. The company was having difficulty tracking all of their inventory parts through about 100 suppliers. The company chalked this up to poor inventory management because employees used Microsoft Excel.

"Even worse, with no central tracking method, the district couldn't give management an accurate answer when asked how their budget was being used," said Bryan Bibeau, a senior air quality instrument specialist for the Ambient Monitoring Group. "When a technician needed a replacement part, he would spend between two and three hours calling around to the various field technicians looking for it. Since we replace between four and five parts a week, as a group we were wasting between 500 and 750 hours a year just tracking down parts."

The company fixed its problems by implementing an inventory control software solution.

Imagine what you could do with an extra 500 to 750 hours a week? When you optimize your inventory management processes, you save money on the front end and make money on the back end.

4. It Affects Morale
We can't imagine Bibeau's employees enjoyed logging all those hours as they scrambled to find replacement parts. The added stress of trying to track down tools can weigh on a company's ability to evolve and beat out competition.

How exactly?

Stressed employees are more likely to skip out of going to work, according to data cited by the Harvard Gazette. These lost workdays cost U.S. businesses $30 billion a year. It's also safe to assume that stressed employees are more likely to leave companies, which also increases hiring and training costs.

Is it really all that unbelievable to think that poor inventory management can cause all of the above to happen. Absolutely.

Managers and owners need to evaluate their company from its foundation for pain points and weaknesses. They then need to examine these flaws to determine exactly how it's costing their company money and time. Finally, they must figure out a way to solve the problem. And if the problem has to do with botched inventory management, the solution is RFgen'sā€‹ mobile data collection and inventory management solutions.

These solutions allow managers to do the following:

  • Reduce Cost: By automating inventory managements, you can have complete visibility into your inventory and optimize you people and processes for maximum efficiency.
  • Improve Customer Relationships: When customers order a product, they expect to receive it on time. And, as we mentioned, they don't want to return products. Mobile data collection and inventory management solutions help managers meet customer expectations by allowing them to better track customers' orders throughout the supply chain.
  • Reduce Shrinkage: Inventory shrinkage occurs when a company's inventory list indicates there are more items in stock then there really are. Imagine telling a customer their package will be delivered soon, only to message them back soon after telling them your company doesn't have the item. That customer will move onto the competition.
  • Improve Productivity: Employees who don't have to spend countless hours checking over inventory numbers have more time to do what they were hired for. This could allow companies to better streamline operations, further putting pressure on their competition.
  • Comply With Government Regulations: Companies that don't comply with government laws can face harsh penalties, such as fines, judicial action and imprisonment, to name a few. RFgen's mobile data collection software allows companies to do everything from tracing products from the point of manufacturing to the point of sale. Finally, companies that are audited can easily pull up all of the needed error-free information within seconds.
  • Make More Informative Decisions: Is one of your products defected? Using mobile data collection software will allow you to track these items and quickly pull them from stock room shelves.

Your inventory is just one part of your entire supply chain and is critical to your business' success. By using the right solutions, such as mobile data collection software, you can ensure your business is maintaining the correct stock so you can quickly meet customer and regulatory needs.

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