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High inventory levels: Overcoming the hurdles

High inventory levels: Overcoming the hurdles

Warehouse shelves filled with large boxes. Retail, logistics, delivery and storage concept. Generic brown containers on racks lined in two rows. Passage in a big storage house. Distribution facility.

High stock levels can be a problem for everyone

Small and mid-sized businesses often overlook the issues and costs associated with high inventory levels, and this can be down to a number of reasons. Some businesses just don’t have the time or human resources to address the challenge and others simply don’t have the right tools for the job. Both common challenges for small to mid-sized business, and equally damaging for cash flow, forecasting and reporting. However, surprisingly, high inventory levels aren’t only a challenge for small to medium-sized businesses; large enterprise corporations are continuously facing similar battles. In fact, the imbalances in stock levels occur in companies of every size and in every industry.

Many companies do not realise or take into account the costs that could be eliminated or the capital that could be released by effectively managing stock levels. And while there are times when it can be beneficial for companies to hold high levels of stock, no organisation can take full advantage of this delicate balancing act if they don’t have an insight into their data. This common dilemma makes it extremely difficult for warehouses, logistics and workers in purchasing or inventory management to know how best to manage their inventory levels.

So, what’s the solution? Is there a way to manage high or low inventory levels in a simple and effective way? Inventory management is a complex challenge with no universal solution and in our latest blog, we are going to investigate some of the factors that contribute to high inventory levels and the effects that they can have on a business.

Can high inventory levels work to your advantage?

Inventory management is a balancing act, constantly weighing up how to minimise the costs associated with inventory whilst still guaranteeing the delivery capability to ensure consumer demands are met in line with service levels. This balancing act can only be achieved by having a clear insight into your data, such as purchasing patterns, seasonality trends and up to date stock levels in order to be able to work efficiently. Methods and tools also need to be in place to give you a complete overview of your entire inventory.

By evaluating and calculating your supply chain key performance indicators, you can identify advantages to holding high inventory levels, however without the right software solution in place, you will not be in a position to evaluate them successfully.

Having higher inventory levels can help you to cater for higher than expected orders that have not been forecasted, however, without proper data analysis and insight into consumer and product trends, this can be a high-risk move, as it is not guaranteed that peaks in orders will occur and if they do for what product. This can mean that you face the carrying costs associated with stocking a higher than the required number of items.

By purchasing in higher volumes, many warehouses also have the advantage of a decreased price per unit when placing orders for inventory replenishment. However, this reduction in the price per unit needs to be compared to the costs of carrying the extra inventory, to determine whether the savings outweighs the carrying costs. By integrating our PSS software with your existing Sage Accounts, our advanced functionality can help you to avoid these issues by easily keeping up to date with stock rotation, purchasing patterns and seasonality peaks and troughs.

Do the disadvantages outweigh the advantages?

In simple terms, in our opinion, the answer is yes. Many organisations maintain higher than necessary inventory levels because they do not have the appropriate systems in place to help them effectively manage the stock levels of every single product line and this can lead to excess and obsolete stockpiling up.

Carrying higher than necessary levels of inventory can also result in other negative consequences for your business and can be a heavy cost burden. These costs can be easily overlooked such as extra lighting, heating, air conditioning, insurance and staffing. Not only this, but excess inventory can also be subject to inventory shrinkage as a result of damage, misplaced goods, stolen items and waste, so not only does the value of your inventory decrease as well as tie up capital, it also requires more maintenance costs and on top of all of this there is also still the chance that the excess stock won’t actually be needed.

External factors to consider

Weighing up these advantages and disadvantages is only part of the issue. Businesses also face challenges externally. Many warehouses rely on the coordinated processes and interfaces that are required for all parties within the supply chain: suppliers, wholesalers, and customers. If one of the links in the supply chain fails or falter, this can negatively impact the flow of goods from your warehouse.

Modern distribution operations have accelerated the time it takes to turn goods over, resulting in a rise in competitive pressure. The increased availability of flexible solutions such as just-in-time production and urban logistics concepts have enabled suppliers to achieve a new level of supply replenishment, so it is imperative for small warehouses to be dynamic and avoid high, inflexible stockpiles and the resulting high costs.

All things considered, the disadvantages seem to outweigh the advantages and should not be ignored.

Keeping inventory levels high in order to boost customer service levels is a costly and temporary solution. Eventually, excess inventory and obsolete stock will accrue, ruling out long-term success and leading to financial issues, especially in a fast-paced and dynamic environment such as a warehouse.

But how can you manage the delicate act of keeping enough inventory on hand to keep your service levels high?

The Solution: Sage stock control software

The best stock management solutions reduce your inventory holding levels by helping you to analyse and determine appropriate order quantities, while simultaneously improving product availability through exact order planning and optimised automated stock replenishment. All this is done through advanced analysis and demand forecasting, allowing you to regain control of all your inventory processes and be one step ahead of your competition.

PSS provides you with a solution to quickly capture stock transactions in real-time, with automatic updates and dynamic entries into Sage to drive efficiency and performance. Any movement, adjustment or change is tracked and updated automatically so you don’t have to. This dynamic and innovative addition eliminates the duplication of tasks, increases accuracy and validates data in real-time to reduce errors. This system also delivers pin-point accuracy on despatch orders and receipts and minimises manual labour needs.

Give your organisation greater flexibility and agility today.