Top 10 Inventory Management Problems and How to Solve Them

Introduction

Proper inventory management is crucial for a business because it affects its profit, how happy customers are, and the success of its supply chain. According to Wasp Barcode Technologies, 43% of small and mid-sized businesses either do not track inventory or use manual methods, which results in both inaccurate stock and supply and problems with overstocking and understocking.

If a small business does not track its inventory accurately, it can end up spending more, and with such little profit, it cannot afford to lose any sales. Not having real-time data, outdated systems, inaccurate forecasting, and no reporting all lead to problems with cash flow and how the warehouse operates.

We highlight the top 10 issues in managing inventory and provide detailed solutions for each one. By dealing with these issues, companies can ensure their stock is just right, get rid of old and unnecessary items, and improve the way they manage and process orders.

Overstocking and Its Impact on Cash Flow

Overstocking is still one of the biggest problems when it comes to managing inventory in many different types of businesses. It usually happens when a business buys more products than it needs to sell to customers. This often happens because companies make wrong guesses about how much product they’ll need, worry about running out of stock, or still use old-fashioned ways to keep track of their inventory. While keeping extra stock can be useful in some situations, keeping too much inventory for too long can end up costing a lot of money.

The most immediate impact of overstocking is that it can make it harder for a business to manage its cash flow. Capital gets stuck in unsold goods, which means there isn’t enough money left over for things like advertising, paying employees, or coming up with new products. Additionally, keeping too much inventory means you have to pay more for storage, use up more space in your warehouse, pay higher insurance fees, and need more workers to manage it all. In cases where products don’t last long or might not sell anymore, businesses can lose money because they have to get rid of them at a lower price or just throw them away.

To address this issue, companies should use forecasting models that look at past sales, what customers usually want, and any changes that happen during different times of the year. Leveraging inventory management software that tracks inventory in real time, uses RFID tags, and connects orders can help you see what you have more clearly and lower the chance of buying too much. Effective inventory management means keeping the right amount of stock, cutting down on costs, and making sure what you have matches what customers want.

Understocking and Missed Sales Opportunities

One of the common issues which is caused due to mistakes made at stock control processes is understocking. Such a mistake has the potential to cause a business to experience a lack of revenues and decreased customer satisfaction. Additionally, a stockout not only affects the immediate sales, but has the potential to worsen the long-term loyalty and trust a customer has built with the business. For small companies, repeated stockouts may lead to the company being perceived as unreliable, causing customers to drift to a different company.

This could stem from poor inventory control processes, inaccurate data, or poor responsiveness to customer demand in a business. Companies that depend heavily on manual order logging find it particularly tough to respond to changes in demand flow, particularly during peak seasons. Order processing, manual control systems, and monitoring systems that lack real-time control all tend to be sluggish when it comes to stocking levels and responding to order patterns.

Businesses adopting automated ordering systems along with precisely triggered stock management would have lower instances of understocking issues. Ordering processes, along with precise analysis of past customer orders, seasonal trends, would cut lead times greatly. Adjusting levels of service responsiveness would greatly improve operational overall performance.

Inaccurate Inventory Data

With incorrect inventory data standing out in the form of discrepancies within a business’s operational cycle, it is one of the most dangerous inventory management complications businesses must deal with. Discrepancies between recorded inventory levels and actual stock on hand leads to operational disruption, order fulfillment delays, and in most cases, customer disappointment. A business reliant on delivery and product availability schedules suffers in service quality and sales when the slightest data inaccuracies exist.

These errors commonly stem from manual inventory management. The use of spreadsheets and physical logs facilitates easier human error during stock counts, order invoicing, and data input. Failing to track inventory motion accurately exposes a firm to the danger of making erroneous purchasing or production decisions, jeopardizing the integrity of the entire supply chain, and inflating the demand forecast error margin.

Employing an inventory tracking system that promises to simultaneously update data on various platforms and real-time tracking alleviates the burden. Daily warehouse operations, including stock intakes and returns, also become easier with the introduction of barcode scanning and RFID tagging. Improved data integrity guarantees reliable inventory management, enabling accurate business forecasts, order management, and overall operational decision-making.

Dead Stock Accumulation

In inventory systems, unsold stock that lingers far beyond its expected turn period is referred to as dead stock. For a majority of businesses, this poses an inventory management challenge, especially for those lacking real-time periscopic data and automated analytics-driven systems. Dead stock is a drag on working capital and increases the cost per square foot of storage, all without any return on investment.

This, in most cases, stems from inept demand forecasting, poor inventory oversight, or an inability to scale stock commensurately to customer demand dynamics. Major contributing factors are an overestimation of sales volume, data-less trend-based marketing influenced purchases, or the retained obsolete inventory on the books in anticipation of sales that will never materialize. Over time, these products not only lose market relevance but also become progressively more difficult to sell, drastically affecting cash flow and inventory velocity.

To mitigate the risk of dead stock accumulation, businesses need to use an active inventory management system that tracks item flows and flags defined slow movers. Regular inventory audits, properly managed historical data, procurement aligned with real-time sales, and best practices are essential. Additionally, improving product life cycle management using accurate forecasting unaligned with market and sales velocity ensures optimal stock levels and mitigates running obsolete inventory.

Inefficient Warehouse Layout and Product Picking Delays

Ineffective layout is an often underestimated inventory problem that can result in excessive delays in product picking and fulfillment activities. Failure to optimize an inventory system leads to increased warehouse work inefficiency, which raises operational expenditure, lengthens order completion, and worsens the problems of misplaced inventory and inconsistent stock control systems.

A majority of warehouses do not consider workflow optimization and expandability in their initial layout. Storing items due to their date of arrival instead of categorization for ease leads to staff hindrance with excessive travel time. These problems tend to worsen during high-demand periods or peak seasons, frequently contributing to delayed shipments and unsatisfied customers.

To solve this issue, companies should focus on strategies that use data to drive business decisions. Structuring product arrangement by pick volume, dimensions, or classifying products, while situating fast-moving products in easily accessible areas, enhances operational flow. Managing warehouse space with vertical shelf storage and utilizing real-time inventory management systems enhances efficiency in relocating stocks, as well as in picking routes, from a strategic layout perspective. Also, mobile-enabled systems facilitate prompt access to current inventories and orders for floor personnel, providing critical information right on the warehouse floor, which enhances effective control of inventory.

Lack of Real-Time Visibility

Managing business inventory poses a greater challenge in today’s world because companies do not have real-time visibility of their inventory. Outdated information on inventory status leads to poor decisions concerning procurement, fulfillment, and production. In most cases, this leads to missed customer orders, delayed order fulfillment, and ineffective inventory control, all of which negatively impact operational efficiency and customer satisfaction.

For companies operating in multiple sites or those having high transaction volume, this problem is even more important. In the absence of an automated system for updating static inventory data, stock movements and situational demands become more difficult to monitor. Gaps in supply chain visibility create delays and contribute to the unrestricted potential of overstocking or understocking. Decreased cash flow and diminished service levels can then be negatively impacted when overstocking occurs and subsequently rely upon.

To address this issue, companies have to adopt a unified inventory control system that provides up-to-the-minute tracking and synchronization of inventory across different teams. The availability of cloud-based inventory management software with RFID tags, barcode scanning, and mobile access allows for accurate real-time inventory tracking throughout the supply chain. Increased visibility enables businesses to make real-time, prompt decisions, which in turn aids the accuracy in tracking and managing inventory, enhances order processing, and balances stock levels by demand.

Obsolete or Outdated Inventory Systems

Many organizations, and particularly small businesses, continue to use outdated ways of managing their inventory, such as spreadsheets or old desktop applications. They usually do not have the features or flexibility needed to handle today’s fast and multi-channel business world. As a consequence, they cause many issues with inventory management, including inaccurate data, limited understanding of what is happening, and inefficient ways of working.

Most legacy systems are not designed to work with important business systems such as e-commerce, accounting, or shipping. As a result, companies must depend on manual work, which can lead to errors and make it hard to make decisions in real time. Moreover, old systems usually can’t handle things like keeping track of inventory, making good predictions, or managing stock in more than one place, which are all important for keeping up with customers and running a smooth business.

Modern inventory management software helps with these problems by letting people access it from the cloud, keeping the information up to date in real time, and making tasks like ordering and tracking easier with automation. Using barcode scanners, RFID tags, demand forecasting, and automated alerts makes it easier to manage inventory and cuts down on costs. Using an integrated and scalable inventory management system helps the business become more accurate, visible, and supports its growth and supply chain management in the long run.

Human Error in Inventory Handling

Human mistakes are a common and significant issue in inventory management, especially in places where inventory is managed by hand. Errors might happen at any point in the process, and even one mistake can affect the accuracy of stock, delay orders, and lead to unnecessary loss of inventory.

These mistakes typically arise from processes carried out by hand, such as data entry or inventory counting, and therefore become susceptible to a multitude of discrepancies. Inadequate training, high turnover rates, and the intricate nature of controlling a large number of stock-keeping units (SKUs) multiply the risk. Not only does this lead to operational sloppiness, but worsens the accuracy of the services, resulting in numerous incomplete orders or delayed shipments, which deteriorates customer satisfaction.

To balance the risks, companies need to implement inventory control systems with automation like barcode and RFID scanning, as well as real-time data updating. Automation eases the burden of manual work and increases accuracy. Equally, there should be clear written standard operating procedures and routine training conducted to reinforce best practices. Adding internal controls like cycle counting and verification for the most expensive and quickest-selling goods improves overall inventory control and minimizes human errors.

Poor Demand Forecasting

Ineffective demand forecasting continues to be one of the key challenges of inventory management for organizations in all sectors. Inadequate forecasts disrupt the equilibrium, lacking either excessive inventory, which leads to high storage costs, or poor inventory, which leads to lost sales and disgruntled customers. These results are exacerbated in volatile markets where consumer demand and inventory levels are in constant flux.

One primary cause of inaccurate predictions stems from reliance on static historical data and personal bias, failing to factor in elements such as seasonal fluctuations, active sales, lead time, or overarching supply chain disruptions. This often applies to smaller companies that lack sophisticated forecasting systems and continue using outdated manual methods. In the absence of accurate forecasting, businesses are prone to demand volatility, ineffective production scheduling, supply chain inefficiencies, and overall resource misallocation.

To solve this, businesses should adopt inventory management systems (including software) that come with built-in demand forecasting. Such systems make use of real-time inventory levels, customer order history, and other factors to produce better forecasts. Automated predictive analytics, which incorporate sales data along with market trends into forecasting models, enhance future planning precision. Forecasting that is integrated with inventory monitoring and order processing improves overall business agility, enabling companies to better manage stockouts, reduce excess obsolete inventory, and enhance overall inventory management.

High Inventory Holding Costs

Managing inventory becomes difficult for businesses when the costs of holding inventory are high. Besides paying for storage, companies must also cover utilities, labor, insurance, the loss of value in their goods, and the risk of items becoming outdated. If stock levels are higher than what customers need, the costs build up and start to reduce the profit made.

Inaccurate forecasting, manual inventory management, and late order handling are some of the main reasons that holding costs increase. When there are too many raw materials or finished goods in storage, it means the company is spending money on unused capital and higher storage fees. This is a major issue for small businesses that often have less cash and less space in their warehouses. If inventory is not tracked well, it can affect both the company’s finances and its overall operations.

To reduce these costs, companies should use inventory management software that tracks stock automatically, updates inventory levels in real time, and sends alerts when stock is getting old. Following best practices such as JIT inventory, accurate forecasting, and regular audits of inventory can help prevent too much inventory from being built up. To solve high holding costs, it is important to match storage with actual sales and customer needs, so that inventory data guides smarter and more efficient operations.

Revolutionizing Inventory Management with Electronic Shelf Labels (ESL)

Electronic Shelf Labels (ESLs) are now being used to solve long-standing issues in managing inventory. ESLs allow retailers to track their inventory in real time and update it instantly in both stores and warehouses. This helps companies avoid mistakes caused by manual work, especially when they have a large number of SKUs.

One of the best things about ESLs is that they can be used with inventory management software. Once linked, ESLs will show the correct stock levels, prices, and product information using real-time inventory data. As a result, inventory is managed better, orders are handled more smoothly, and the company responds faster to what customers want. During busy times or when there are sales, ESLs make sure that product information and prices are correct everywhere, so customers do not face delays or become unhappy.

ESLs help both small and large businesses overcome common problems with managing inventory. They help cut down on the time and effort needed to change labels manually and improve the process of checking inventory. ESLs help improve how visible and accurate data is at any given time, which supports better forecasting, reduces the risks of having too much inventory, and cuts down on supply chain costs. As part of a larger inventory management system, ESLs help solve both simple and difficult inventory issues.

Zhsunyco®: Enhancing Inventory Management with Professional ESL Solutions

Founded in 2016, Zhsunyco® is a prominent distributor and electronic shelf label (ESL) solution provider for retail, warehousing, and logistics industries. Zhsunyco® automates real-time inventory visibility, operational cost reduction, and manual labeling errors elimination with the help of cordless technologies such as 2.4GHz, 433MHz, BLE, and NFC.

Zhsunyco® ESLs fully integrate with modern inventory management systems such as automatic stock updates, low-stock notifications, and real-time product information updates across multiple locations spanning different time zones. These features solve critical business issues: inventory discrepancy, accurate real-time data flow, expensive labor, and poor inventory control. Zhsunyco®’s support transition of businesses to smart inventory systems continues with over 35,000 retail clients in more than 180 countries.

Want to enhance operational effectiveness and precision of inventory records? Reach out to us for bespoke ESL strategies and free consultations.

Conclusion: Choosing the Right Strategy for Your Inventory Future

Different inventory management issues, such as overstocking, understocking, and inaccurate demand forecasting, can negatively impact profitability while simultaneously disrupting the entirety of the supply chain. Underlying these problems is the use of outdated instruments, manual techniques, and the absence of real-time analysis. Companies need to adopt better solutions along with appropriate inventory management software, real-time inventory systems, and reliable demand forecasting to solve these challenges. Whether you are a scaling retailer or a producer of goods managing raw materials, taking measures beforehand safeguards your cash flow and guarantees better product access.

• 📋Summary Table: Top 10 Inventory Management Problems and How to Solve Them

Inventory Management Problem	Suggested Solution
1. Overstocking	Enhance tracking, monitoring demand, as well as implementing forecasting.
2. Understocking	Establish predictive analytics stock levels for safety stock.
3. Inaccurate Inventory Data	Regularly check through audits as well as automated systems.
4. Dead Stock Accumulation	Analyze product movements based on regular intervals, as well as applying FIFO/JIT strategies.
5. Inefficient Warehouse Layout	Apply digital picking systems while redesigning the warehouse layout.
6. Lack of Real-Time Visibility	Apply cloud-based systems alongside real-time data tracking.
7. Obsolete Inventory Systems	Invest in proper scalable systems and install tracking software to automate/manual ensure inventory workflows.
8. Human Error in Inventory Handling	Apply quoting barcode/RFID as identifiers to the standard operational process.
9. Poor Demand Forecasting	Analyze sales using AI-powered demand forecasting tools.
10. High Inventory Holding Costs	Utilize excess stock as a leveled on trigger points while optimizing the reorder point.