Why Is Inventory Management So Important?

Inventory management is crucial to any supply chain or warehouse-based business. Proper inventory management can be a huge contributing factor to success.

What Is Inventory Management


On the other hand, poor management can potentially be the source of financial losses or even complete business failure. It is extremely important to research and invest the time and money in a good inventory management system.

What Is Inventory Management?

Managing inventory involves the crucial responsibilities required to run a well-organized warehouse, no matter what the size and scale. These responsibilities include.

  • Maintaining storage
  • Controlling the number of products for sale.
  • Order fulfillment
  • Overseeing purchases
  • Keeping track of stock.
  • Knowing where all stock is located.

1] Inventory Management Solutions

  • Manual Control

The common old-school way of tracking inventory is by using a spreadsheet with columns for item number, product name, and quantity. This includes as well separate columns for the amount sold and shipped.

This method can possibly be effective for an extremely small business, but it requires a lot of labor that could be dedicated to more productive tasks. It is also prone to a lot of risks of human error. Inaccurate inventory numbers can lead to issues such as overstocking and loss of profits.

  • Automated Systems

Many businesses choose to go with automated systems. There is a wide array of programs and systems out there, but they all have one thing in common: reducing the amount of paperwork and increasing employee efficiency.

An extra convenience some software options offer is a barcode system. The barcode scanner connects to mobile devices and barcode printers. Another option is choosing a system that seamlessly integrates with systems such as CRM, accounting, and e-Commerce applications. Integrating your inventory systems leads to improved optimization, visibility, and accuracy of financial reports.

Inventory Management

2] Negative Effects of a Poor Inventory Management System

  • Over or Under Stocking

If your business is lacking a proper inventory management system, you cannot properly keep up with the supply and demand of your customers. Customers are never happy to hear that something is unavailable, and this can build a poor reputation for a business.

Not only will there be a low number of returning customers, but the company loses potential business that they would’ve made if they were properly stocked.

On the other end of the spectrum, but also a detrimental consequence, is having overstock. If a company ends up with too much product, they have to sell it for a reduced cost, sometimes by having sales.

Your business can lose out on projected profits by having to reduce costs, or sometimes even having to dispose of items when dealing with perishables. You can also lose money holding on to overstock, with storage costs skyrocketing quickly.

Properly recognizing supply and demand and accurate documentation of inventory and what is on order can keep these money-losing issues in order.

  • Lack of Employee Efficiency

Without an effective management system, your employees will be wasting time and payroll solving inventory control problems. Time that could be spent getting more pertinent work done is wasted with employees having to manually write reports and search through files, or having to make excessive trips to the warehouse when there is an issue.

If you have more than one location, time can also be wasted with employees having to call each other to confirm where inventory is.

Choosing the proper inventory control system leads to an increase in profitability by reducing overstock, assuring you have adequate amounts of products, and improving employee efficiency.

Inventory control can be the difference between a thriving or failing business. If you are starting a business or noticing any of these problems, it could be extremely beneficial for you to seek out a better inventory management system.

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About the author

Michael Austin

Michael Austin is a Internet Entrepreneur, Blogger, Day Dreamer, Business Guy, Fitness Freak and Digital Marketing Specialist. He also helps companies to grow their online businesses.