The lifeblood of your business is getting your products to your customers on time. And staying on top of your inventory and managing it efficiently helps you meet demand and generate sales. We’ll walk through some of the common inventory management challenges—and how to overcome them. To learn more, read our inventory management article.
20 Common Inventory Management Challenges
Managing inventory is a daunting task. The process and results impact every aspect of your business. To help, here are 20 common inventory management challenges to watch for in your supply chain.
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Inconsistent Tracking:
Using manual inventory tracking procedures across different software and spreadsheets is time-consuming, redundant and vulnerable to errors. Even small businesses can benefit from a centralized inventory tracking system that includes accounting features.
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Warehouse Efficiency:
Inventory management controls at the warehouse is labor-intensive and involves several steps, including receiving and putaway, picking, packing and shipping. The challenge is to perform all these tasks in the most efficient way possible.
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Inaccurate Data:
You need to know, at any given moment, exactly what inventory you have. Gone are the days when inventory could be counted once a year with an all-hands-on-deck approach.
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Changing Demand:
Customer demand is constantly shifting. Keeping too much could result in obsolete inventory you’re unable to sell, while keeping too little could leave you unable to fulfill customer orders. Order strategies for core items, as well as technology to create and execute an inventory plan, can help compensate for changing demand.
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Limited Visibility:
When your inventory is hard to identify or locate in the warehouse, it leads to incomplete, inaccurate or delayed shipments. Receiving and finding the right stock is vital to efficient warehouse operations and positive customer experiences.
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Manual Documentation:
Managing inventory with paperwork and manual processes is tedious and not secure. And it doesn’t easily scale across multiple warehouses with lots of stock.
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Problem Stock:
Perishable and fragile stock need specialized plans for care and storage. And high-value inventory needs specific loss-prevention strategies and inventory controls.
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Supply Chain Complexity:
Global supply chains shift daily, placing a burden on your inventory planning and management operations. The manufacturers and wholesale distributors that dictate when, where and how your inventory ships require flexibility and offer unpredictable lead times.
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Managing Warehouse Space:
Efficiently managing space is an intimidating task. Planning and designing warehouse spaces with inventory management platforms helps you better control the timing of new stock deliveries. It can account for important factors, such as available space. Read more about the differences between warehouse management and inventory management.
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Insufficient Order Management:
One of the most common challenges to sound inventory management is preventing the overselling of products and running out of inventory. Using historical and seasonal data trends can help you accurately predict customer orders.
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Increasing Competition:
Globalized supply chains are subject to unpredictable economic shifts and market forces that impact the competition for raw materials. Small businesses are sometimes faced with choosing between competing for high-demand materials or holding enough inventory to control costs.
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Evolving Packaging:
Compostable packaging—or removing packaging all together—to reduce waste presents new obstacles for warehouse design and storage. It may even mean new equipment or shorter shelf life for some items.
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Expanding Product Portfolios:
Many online retail strategies remove the need for large warehouse distribution centers. These strategies make it easier to expand inventory and diversify product portfolios, but demand technology and resources for ordering, shipping and tracking.
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Overstocking:
Keeping too much stock on hand can be as problematic as having too little. Overstock impacts business cash flow and leads to inventory-related problems, such as storage and loss.
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Inventory Loss:
The loss of inventory due to spoilage, damage or theft can be a supply chain problem. It requires identifying, tracking and measuring problem areas.
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Poor Production Planning:
Production planning is vital for avoiding delayed manufacturing and cost overruns. If not done well, it can impact sales forecasts and project scheduling.
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Lack of Expertise:
It can be tough to find skilled inventory managers who are adept at the latest technology and can improve inventory strategy. Simply upgrading your inventory management platform with a host of features isn’t enough. You need capable management.
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Poor Communication:
Communication and collaboration are key. When departments are apathetic about sharing information, it makes identifying inventory trends and finding ways to improve much more difficult.
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Inefficient Processes:
Low-tech, manual inventory management procedures don’t seem like a daunting challenge when inventory is small and there’s only one warehouse location to manage. But as sales volume increases and inventory expands, inefficient, labor-intensive and low-tech standard operating procedures are difficult to scale.
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Inadequate Software:
To scale inventory management software to support complex logistics, it needs to integrate with your existing business process platforms. The difficult task is choosing from hundreds of inventory management solutions and mastering a host of features that require training and ongoing support.
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20 Solutions to Overcome Inventory Management Challenges
Inventory management is immensely complex. Here are some solutions to the common inventory management challenges listed above.
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Centralized Tracking:
Consider upgrading to tracking software that provides automated features for re-ordering and procurement. Inventory management platforms provide centralized, cloud-based databases for accurate, automatic inventory updates and real-time data backup.
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Transparent Performance:
Measure and report warehouse performance metrics like inventory turnover, customer satisfaction and order processing speed to overcome warehouse inefficiencies. Share this data with employees and suppliers.
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Stock Auditing:
Frequent stock auditing processes, like daily cycle counting, reduce human error and provide more accurate, up-to-date inventory data for managing cash flow. Organize audits by category and cycle count smaller inventory samples on a predictable schedule for more accurate financial data.
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Demand Forecasting:
Some inventory management platforms include demand forecasting tools. This feature integrates with accounting and sales data to help you predict demand and schedule orders based on shifting customer preferences, material availability or seasonal trends.
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Add Imagery:
Add images with product descriptions in your inventory database to improve purchasing and receiving processes, enhance accuracy and prevent misplaced inventory.
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Go Paperless:
Give employees the right inventory tools for the job. They need software to replace manual inventory documentation, and paperless transactions for invoices and purchase orders.
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Preventive Control:
Implement stock control systems to manage problem inventory, such as perishable stock, fragile equipment or obsolete materials. Perform regular preventive maintenance on machinery and equipment stock in storage if required by the manufacturer. Catalog data on problem stock location, cost and quantity to monitor shelf life and prevent waste.
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Measure Service Levels:
Monitor and track supplier data, such as shipment errors, damaged or defective products and missed delivery appointments. Measure your supplier’s performance to find and fix supply chain disruptions, reduce complexity and streamline logistics.
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Optimize Space:
Use inventory management systems with warehouse management features to optimize storage space and inventory flow. Categorize inventory storage down to shelf, bin and compartment, and automate order picking, packing and shipping workflows.
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Automate Reorders:
Backordered inventory delays production and creates poor customer experiences. Use inventory management software to set automatic reorder points based on preset stock levels and current availability to avoid overselling.
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Safety Stock:
Maintain safety stock to offset supply chain disruptions and help manage increased lead times due to shifting international competition for raw materials. Proper inventory planning helps operations adapt to dynamic global supply chains.
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Classify Inventory:
Create inventory classifications to manage changing trends, such as packaging initiatives to reduce plastic waste. Categorize stock by packaging type, dimensions and product. Use this information to control shipping costs and storage location better.
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Multi-Location Warehousing:
Use multi-location warehouse management features to track and control expanding inventories. Take advantage of receiving and put-away schedules with automated inventory tracking alerts and scheduling features that keep tabs on warehouse location and in-transit inventory.
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Leverage Lead Times:
Take lead times into account when placing orders for high-demand stock. Track and manage your high-demand inventory using cycle counting data to set automatic reorder points and average lead time to preventing stockouts.
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Reduce Human Error:
Use inventory control processes like blind receiving with barcodes and mobile scanners to prevent human error, inventory manipulation and shrinkage due to theft or negligence.
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Plan Demand:
Use an inventory management system with advanced demand forecasting and reporting features to prioritize your top inventory. Take into account the availability of the top 20% of inventory that generates 80% of your customer demand. To learn more about inventory planning and demand forecasting, read our essential guide to inventory planning.
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Subcontract Expertise:
Consider outsourcing to an expert in inventory management. Contract in-person training and provide online support to help employees follow best practices for working with technical inventory management software features.
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Dashboard Collaboration:
Introduce dashboards with simple interfaces that show real-time inventory data. Having everything on one screen helps remove communication barriers across accounting, sales and warehouse operations.
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Productivity Tools:
All the information you need about your inventory can be in your pocket. With mobile solutions and cloud-based software, you can control inventory and improve your warehouse productivity from anywhere in the world.
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Update Platforms:
Upgrading to a cloud-based inventory management platform doesn’t just give all the latest features. You get to take advantage of the vendor’s expertise and training while it’s being implemented.
Summary of Inventory Management Challenges and Solutions
Use this quick-reference chart to review common inventory management challenges and suggestions for how to overcome them.
Inventory Management
| Challenges | Solutions |
|---|---|
| Inconsistent Tracking | Centralize your tracking data with a cloud-based inventory management solution with real-time data backup and automated inventory updates. |
| Warehouse Efficiency | Measure and report warehouse performance metrics—such as inventory turnover, customer satisfaction and order processing speed—to improve warehouse inefficiencies. |
| Inaccurate Data | Schedule frequent stock auditing like daily cycle counting of different stock categories in small, manageable batches. |
| Changing Demand | Integrate inventory management software and demand forecasting features with your accounting and sales data to identify essential inventory. |
| Inventory Visibility | Add images with product descriptions in your inventory database to enhance accuracy and prevent misplaced inventory. |
| Manual Documentation | Replace manual inventory documentation, invoice and purchase order procedures with software that creates paperless records and automates data input. |
| Problem Stock | Catalog data on problem stock, such as location, cost and quantity. This will help you monitor shelf life and prevent waste. |
| Supply Chain Complexity | Monitor and track supplier performance to prevent supply chain disruptions, reduce complexity and streamline logistics. |
| Warehouse Space | Categorize inventory storage down to shelf, bin and compartment and automate order picking, packing and shipping workflows. |
| Insufficient Order Management | Use inventory management software to set automatic reorder points for inventory based on preset stock levels and current availability to avoid overselling. |
| Increasing Global Competition | Maintain safety stock to offset supply chain disruptions and manage increased lead times due to shifting international competition for raw materials. |
| Evolving Packaging | Create inventory classifications to categorize stock by packaging type, dimensions and product. Use this information to control shipping costs and storage location. |
| Expanding Product Portfolios | Improve receiving and putaway schedules with automated inventory tracking alerts and scheduling features that keep tabs on warehouse location and in-transit inventory. |
| Overstocking | Track and manage your high-demand inventory using cycle counting data to set automatic reorder points and optimize shipments by average lead time. |
| Inventory Loss | Use inventory control processes like blind receiving with barcodes and mobile scanners to prevent human error, inventory manipulation and shrinkage due to theft or negligence. |
| Poor Production Planning | Track and manage the availability of the top 20% of the inventory that generates 80% of the demand using an inventory management system with advanced demand forecasting and reporting features. |
| Lack of Expertise | Outsource to an inventory management expert. Use in-person training and online support contracts to help employees learn best practices for working with specialized inventory management software features. |
| Poor Communication | Introduce integrated dashboards with real-time inventory data and a simple user interface to communicate and manage workflows across accounting, sales and warehouse operations. |
| Inefficient Processes | Leverage product location scanning and barcode technology (or RFID tagging), mobile devices and cloud-based software to increase warehouse productivity and improve inventory control efficiency. |
| Inadequate Software | Adopt an integrated, cloud-based inventory management platform and leverage vendor expertise and training services at implementation. |
Overcome Challenges With Inventory Management Software
The right inventory management platform can automate processes, improve inventory practices and enhance customer experiences. NetSuite offers a collection of native inventory management and control features to help overcome some of the biggest inventory management challenges. Track inventory across multiple locations, automatically manage reorder points, forecast demand and plan production and distribution.
