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Are you making these five common inventory mistakes?

by , 14 August 2015
'I didn't care about inventory management until my manager left and I started running out of stock, losing sales and loyal customers. I lost 2% to 3% of sales every day!' This is a situation that one of our readers experienced.

You and many of our other readers may not realise the importance of efficient and effective inventory management. But it forms part of any successful business. It provides uninterrupted production, sales and/or customer service.

Here are five common inventory mistakes you might be making when it comes to managing your inventory and how to fix them.

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Here are five common inventory mistakes and how to fix them


1. Don't buy too much inventory

It's easy to spend too much on inventory, which eats into your working capital and profits. Warehousing costs are expensive, and having inventory sit on the shelf is hard to move, subject to damage and depreciation.
 
To fix it: Gauge what you've sold in the past. If you've sold 100 items per month in the past 12 months, then the chances are you'll only need 100 this month. Seasonality also affects your stock, so if you suspect a spike in sales from the holiday season or a drop in sales from the winter season then you need to take this into account with your inventory levels and adjust them accordingly.
 
2. Inaccurate inventory tracking
Once you know how much you need, you have to make sure you actually have it on hand. Miscounting inventory occurs from time to time but it's a costly error.
 
To fix it: Use an electronic data interchange system (EDI) and a bar code scanner to eliminate errors. Set time aside and do a staock take to compare the inventory record to the actual count.
 
3. Lack of priorities
It takes a large amount of time and resources to keep track of all details for each inventory item.
 
To fix it: Focus on inventory items that matter the most. Spend most of your time on inventory that generates the most sales. So 'A' items are your best-selling inventory items that generate most of your sales. The next best seller is 'B' items that generate 20% of sales. Then 'C' items are the slowest selling that generates 10% of your sales.
 
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4. Using spreadsheets

It might seem standard procedure to track your inventory with excel but you're asking for trouble. It's easy to accidently delete those spreadsheets or lose changes made.

To fix it: Use proper software like QuickBooks or Pastel. These better known accounting packages include inventory features which makes it easier to track and record your inventory.
 

5. No Backup Plan

So you're bar coding away and using Quickbooks or Pastel to record your inventory but what happens if your computer packs up or is stolen?

To fix it: You need a backup plan. This can be as simple as saving critical data to removable thumb drive. Or send a backup copy of your inventory to your accountant every month.

P.S. If you have a question on internal controls and inventory management in your company, simply check out this great question and answer service!


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