Inventory refers to the physical stock of item that a business keeps at hand for efficient running of its affairs. Therefore, Inventory management is the supervision of non-capitalized assets and stock items. It involves ordering, storing and using of a company’s inventory: raw material component and finished.

Inventory management has always been a serious challenge that is faced by a lot of businesses. Although a tight inventory control and sales forecast are two strategies that help with inventory management, companies are still faced with many other inventory challenges. Taking the time to study and understand these challenges can be a turning point in solving them. In that vein, here are 10 critical challenges of inventory management and how you can overcome them.

  1. When to purchase more inventory

In most inventory intensive businesses, a shortage of supply of inventory can present a lot of undesirable effects for the company. On the other hand, having more inventory at hand than needed can result in spoilage, theft, damage or even decline in demand. Reorder points (otherwise known as minimum and maximum levels) are the best method for making sure you have the right amount of inventory in your warehouse at all times. If you have too little inventory you could lose out on sales, but if you have too much your cash is tied up in inventory that will not be sold.

One of the biggest problems many companies have is managing their cash. A quick way to solve that from an inventory standpoint is by making sure you have set the appropriate reorder points for your business.

2. Software is too complex

Some methods of inventory management can be relatively complex and difficult to understand on the part of the staff. This may result in the need for employees to undergo extensive training in order to grasp how the system works thus increasing costs for the company or business owner.

To counter this problem the company has to make extensive research before it commits to an inventory management software. If you have simplicity and ease of use in mind, the software you should go for should have the following characteristics;

  • It should be able to be installed and maintained with no special expertise.
  • It should be customizable to the company’s need
  • It should have flexible support option
  • It should include extensive and thorough training and additional trainings if there has been a major update in its features
  • It should allow free trial for a period of time to determine that what the software is offering is what you actually need.

3. Improperly arranged warehouses

Sometimes, warehouses where inventory is stored are not properly arranged for optimum operation. It isn’t uncommon to see large warehouses that are organized haphazardly. These companies could save themselves large sums of money by making a few changes to where they place their inventory. It goes without saying that the items which are most frequently used or sent out most often should be keep close to the door or shipping dock. This saves the time and energy of your employees because they will not have to walk a long way in order to get the item. When a company is growing, there may be a tendency for inventory to be dropped where there is space as opposed to where it will be most convenient for future use. This works for a little while, but as you grow you need to think about efficiency because the minutes that your employees spend looking for an item can cost you money.

4. Inefficient mastery of inventory management software

Just like the functionalities on a mobile phone, the full potentials of most inventory software are not being harnessed by a lot of businesses. A lot of times, the businesses barely scratch the surface on what their inventory management software can do. It is not uncommon for businesses to complain to the software company about a feature they want to be added to the software without realizing that the feature already exists in the software. The more your exploit the features that your inventory management software has the offer, the more efficient your inventory management operation will be. To this effect, you should assign someone who will be tasked with learning how the software functions or you can pay someone to come and teach you.

5. Relying on manual processes

Manual methods of inventory management such as counting by hand and then recording in an excel spreadsheet may seem like a cheap alternative in the short run, but due to the inconvenience, stress involved and the high degree of error inherent in the system, it could end up costing you more in the long run. Manual processes are not only time consuming and error prone, they also make it almost impossible to track long term trends, supply chain bottlenecks or inefficiencies. They also hamper collaboration and information sharing. An easy way to surmount this problem would be to automate the inventory management process with the aid of a software. Inventory management software incorporates barcode scanning as well as serial and lot member tracking to eliminate the errors that come with manual data entry.

6. Redundant Processes

Sometimes during the process of inventory management, there may seem to be a perceived need for different employees to handle a product several times due to the nature of the warehousing process. This tendency lingers on in current practices. A good example of this redundant process is where warehouse workers pass the same ticket through multiple hands. Even though this practice may be necessary in some case, there is no denying that this redundant process is not only time consuming but also increases the cost of labor. You can make use of barcode technology to streamline the warehousing process, removing redundant processes while maximizing resource utilization.

7. Ensuring that everyone has access to the inventory information they need

Warehouse managers, production, procurement, logistics, sales, customer service, accounting et al. need one form of inventory information or the other. They need information that is not only accurate but also up to date. This is not usually an easy ordeal when you consider the fact that multiple sites are each doing their thing in different ways. Even though inventory information is very critical, its access and flow has to be controlled so that its vital information does not get stolen, deleted or altered in any way. You can solve this dilemma by using your inventory management software to restrict access to only those individuals or departments that need it to be made available to them and at only when they need it.

8. Seasonality in Demand

Variations in the amount of demand a business has can cause a problem in managing inventory. A reduction in volume of sales due to a global economic downturn can be problematic for a business due to the increased number of inventory it may have at hand. Although it does not affect all industries alike, the problem highlights the challenge of fluctuations in demand due to forces outside the control of the business.

In order to manage the seasonality of demand, your will need to have timely and accurate information about manufacturing, retailing and the industry. Information gaps between the warehouse and other relevant entities, limit the ability of the distributor to monitor and respond to changes in demand effectively. It is pertinent for businesses to use timely and accurate information in planning and forecasting demand as well as in providing supply chain visibility.

In order to combat some of the effect of seasonal demand, you can rearrange the inventory you have to match the current state of demand. Such a rearrangement will involve placing the items that are currently in high demand during the current season in front where they can be easily accessed.

Dealing with seasonality in demand, however, goes beyond just layout and picking. The problem also requires proper management of transportation networks and strategic sourcing of transportation services. These long-term solutions build a lasting capability with strategic value for the distributor.

9. Inaccurate Inventory

When it comes to inventory management, it should be accurate as well as efficient. Inaccurate inventory causes problems such as maintaining improper stock levels and buildups of obsolete inventory. Picking problems also arise when pickers rely on inaccurate information, leading to inefficient processes. Inaccurate inventory is also disadvantageous in the sense that it results to increased expenses, lost revenue and low productivity. Automation is a key factor in solving accuracy-related problems.

Automated systems offer real-time, accurate information about stock levels and composition. The technology employed in managing inventory is critical to success because the value of the automated system is just as good as the quality of the system itself. A low-quality system retains some of the risks associated with inaccurate inventory. A careful and informed selection process reduces the risk of procuring an automation system that does not meet the needs of the warehouse.

Warehouses are faced with an ever changing environment, where global supply chain can have an effect on a local business. To counter these challenges that come about as a result of new developments is to make use inexpensive solutions that offer sustainable best practices. Warehouse managers should monitor and track changes in the business environment and respond according to the realities on ground.

10. Periodic inventory management

Businesses used to shut down for a day to a week each year to go into their warehouse and physically count everything to make sure that it matched the information in their software. This practice is mostly outdated because of the amount of time and money it takes. Doing these checks in smaller, more regular cycles keeps a company from having to shut down. It is recommend to pick one section each day to check your product levels against the information from your inventory software.

In conclusion, it is good to remember that inventory management and issues associated with it are on-going challenges that businesses have to address all the time. More often than not they cannot be solved once and for all, but require persistent work and innovative approaches, else they can become serious problems that will have a major impact on the profitability of a business.

Ajaero Tony Martins