Proper Inventory Management is a Must for Business Growth
When businesses are in their early stages, the focus is often on what are traditionally thought of as key business parameters: profit margins, investment, and sales growth to name a few. One feature commonly overlooked is inventory management. A new business will typically use an inexpensive method to manage inventory such as simple spreadsheet programmes, rather than spending money on more comprehensive software. However, proper inventory management is critical to business growth, as will be explained below.
Finding the Right Balance
When demand is low or uncertain, a large concern for a business is being caught with too much stock, as the business will face excessive holding costs, as well as risk stock becoming obsolete or out-dated such that it has to be sold at a discount. When demand is high, the concern is being caught with too little stock to meet customer demands. For a business to successfully grow, it needs to be able to avoid either of these extremes. Excessive holding costs or obsolete stock will create cash flow problems that can cripple a new business, while often being out of stock will damage a business’s reputation, and a reputation of not being able to meet customer needs is equally crippling.
With a strong inventory management system, a business can avoid these scenarios by improving inventory visibility. That is, managers can check on their inventory levels in real-time, allowing them to respond quickly to changes in demand. Over the long term, inventory management software can identify trends in demand and allow a business to adjust its orders accordingly to find its optimum inventory levels. None of this can be done with basic, spreadsheet-type methods.
Making Best Use of Resources
To grow in a competitive market, a business needs to maximise the use of its resources. With an optimal level of inventory, a business will be able to use funds that would otherwise have been spent on excess inventory for more productive purposes. Also, its resources will not be put to waste dealing with problems that come with being under-stocked such as customer complaints, or negotiating last-minute orders.
A further requirement for growth is the ability to plan comprehensively for the future. A system with inventory management software substantially aids planning by the data it provides. Managers can use the software to assess the impacts of sales policies, promotions and pricing structures; and how these may influence demand and conflict with production capabilities. They can dissect different demand segments for their products, and develop demand-based service strategies for the different segments. When setting long-term objectives, the software will tell managers what adjustments to inventory need to be made to meet these objectives.
No business is immune to inventory-related problems, whether it be supply chain related, finding optimum inventory levels, or product defects. Long-term growth depends on these problems being identified and remedied as soon as possible. A big advantage of inventory management software is that the real-time data allows managers to detect issues speedily, compared to spreadsheet systems that often cause problems to remain unidentified, and compound over time.
While a comprehensive inventory management system might at first seem like an unnecessary cost to a new business, inventory management software is well worth the investment due to its wide-ranging capability to assist business growth.