Starting a small business comes with no shortage of challenges. From finding a market to finding the right team, there’s a lot you need to get right if you want your small business to succeed. However, there’s one management challenge that many small businesses overlook: inventory. When companies don’t make inventory management a priority, they lose money, customers, and may even lose their business.
These are the most common inventory management problems holding small businesses back and the best practices for avoiding them.
Data Entry Errors
No matter how detail-oriented your data entry team is, errors will happen. As Opin explains, single-entry data has a shockingly high error rate, with approximately 400 errors per 10,000 entries. While double-keyed data is more accurate at 0.5 to 4 errors per 10,000 entries, even a handful of errors have ripple effects throughout a company.
A single mistyped number could cause you to order more product than you need, spiking warehousing costs and shrinking profits as you’re forced to markdown inventory in order to move it. Or it could cause stock-outs that leave your shelves bare, like what happened to Target in Canada, or lead to misplaced inventory that slows order fulfillment and hurts customer satisfaction.
Many small businesses default to manual data entry as the simplest, most cost-effective solution to inventory management. After all, Excel is cheap and requires minimal or no training to use. However, between high error rates and the amount of manpower required to double-key large amounts of data, any cost savings gained through a low-tech system are quickly wiped out.
Rather than relying on manual data entry, businesses should seek to reduce the amount of human touch required to track stock by implementing a warehouse management system (WMS). This type of software has numerous benefits, including ease of use, and the ability to transform laborious inventory counts into an accurate, efficient process. They also help solve another major inventory management problem: a lack of real-time inventory tracking.
Taking Inventory Infrequently
Far too many small businesses take inventory once or twice per year, scheduling downtime and reallocating workers in order to accomplish this tedious, time-consuming task. Taking inventory infrequently, however, means months could pass before noticing a major issue like excessive shrinkage or forecasting flaws.
Rather than halting operations to conduct a painstaking inventory count, small businesses should perform frequent cycle counts throughout the year. As Industry Week explains, cycle counting involves auditing subsections of inventory on a rotating basis. Paired with an automated inventory system like a WMS, cycle counting is an efficient process that fits into a staff’s daily routine instead of disrupting normal operations.
Over- and Under-Stocking
Frequent inventory counts allow companies to identify patterns in inventory management, making it easier to identify shrinkage indicating a theft problem or errors in forecasting. Forecasting, in particular, is a sticking point for small businesses. Purchase too much inventory, and you’re shelling out large sums of cash for stock you may not be able to move. Buy too little, and you’ll struggle to fulfill orders and keep shelves stocked.
Regular inventory counts are the first step in improving your company’s forecasting. When you have data showing how demand ebbs and flows throughout the year, you can more accurately plan stock for the following year. However, truly accurate forecasting requires looking at both internal data and external factors like product lifecycle, competitor activity, and even the weather.
Software that integrates with a WMS is the best solution to demand forecasting in a small business. This may come in the form of a full-featured enterprise resource planning software, but for many small businesses, inventory management software with built-in forecasting capabilities is a more accessible solution.
Get On Top of Inventory
Don’t let inventory be an afterthought for your small business. While you might think your efforts are best spent attracting and serving customers, effective inventory management is the backbone of any business. By developing an inventory management system with minimal errors and accurate forecasting, you can build a business that keeps your customers satisfied and your cash flow positive.