What is the Cost in Holding Too Much Inventory?
Understanding the High Costs of Excess Inventory
Managing inventory efficiently is essential for any business aiming to optimise stock levels and cut costs. Investing in an inventory management system can enable you to run a lean inventory.
1. Excess Inventory Increases Carrying Costs
There is a high cost associated with warehouse space. Filling this space with slow-moving, obsolete stock will result in higher overheads and lower profits preventing you from operating at full capacity.
According to a study by the University of Warwick, “lean inventory management techniques have helped UK manufacturers reduce lead times by 26%, inventory levels by 33%, and costs by 20% on average” (University of Warwick, 2017).
2. Excess Inventory Restricts Cash Flow
Cash tied up in slow moving and obsolete stock is a significant problem and stops you from investing in more profitable, fast-moving stock. It is critical you determine your stock levels and identify what is slow moving and obsolete. With real-time data you can track sales, identify which products aren’t selling and remove them from stock. Freed up capital can be used to purchase profitable, fast-moving products.
The Chartered Institute of Procurement & Supply (CIPS) in 2018 reported that “poor demand forecasting was the leading cause of excess inventory in the UK, with 47% of businesses surveyed attributing stock excesses to inaccurate demand predictions” (CIPS, 2018).
3. Limits Flexibility in Meeting Customer Demands
Holding excess stock means you may find yourself with less cash and less space to react to changes in customer demands. A lean inventory gives you flexibility when it comes to identifying changes in sales trends and exploiting those changes to the advantage of your business. This will allow you to quickly adjust and adapt to dynamic market conditions, giving you a competitive edge and maximising profits.
The British Retail Consortium (BRC) found that “UK retailers held an estimated £10 billion worth of excess stock due to the impact of the COVID-19 pandemic“, with sectors like fashion and homeware being most affected (BRC, 2020).
Real-Time Inventory Control as a Solution
Multi-Location, Multi-Channel real-time inventory control is a powerful tool for data-driven decision making. By tracking inventory across multiple locations and sales channels, your management teams have the insight necessary to forecast demand and make the purchasing decisions that will drive your business forward.
Real-Time Reporting Benefits
Using Multi-Channel real-time sales data and reports gives you a better understanding of which products are driving your business towards success and profitability. By analysing data from all channels and tracking sales reports you can gain valuable insights and make better management decisions based on customer purchase behaviour and preferences.
A 2018 study by the Chartered Institute of Procurement & Supply (CIPS) revealed that “64% of UK businesses surveyed that had implemented real-time inventory systems reported improvements in their inventory management, including reduced excess stock levels” (CIPS, 2018).
Businesses looking to streamline costs and enhance operational efficiency should consider inventory management software, supported by custom reporting. Optimising warehouse processes is crucial for ensuring inventory accuracy, monitoring stock turnover and avoiding overstock situations.
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Author: Iain Coplans CEO Stok.ly