In the last several years, we’ve realized that ever-present uncertainty is here to stay, and how we manage inventory has forever changed. There is no shortage of companies struggling to keep up with their inventory management. Managing inventory is crucial to meeting corporate goals and fulfilling customer promises. It’s core to any successful business in the best of times, and if you’re not staying on top of it these days, you could quickly find yourself behind the eight-ball.
So, what does it mean to be behind the eight-ball? The origins of the phrase aren’t clear but are likely from the game of eight-ball pool, where one cannot contact the eight-ball on a shot before it is the legal ball, frustrating attempts at a clear shot and presenting a risk for less skilled players. However, when it comes to inventory, being “behind the eight-ball” means that you’re not effectively managing your inventory and are at a disadvantage.
Let us look closely at some signs that you may be behind the eight-ball and some tips on changing the game.
First and foremost, you may be experiencing stockouts. Stockouts occur when you need more inventory to meet demand, so you can’t fulfill orders. This can be a significant problem for businesses, resulting in lost sales, dissatisfied customers, and damage to your reputation. If you are constantly running out of stock, it is a sign that you need to right-size your inventory more effectively.
Five Causes of Stockouts
Stockouts, or the unavailability of products, can be caused by various factors. Even the most well-prepared companies can face unforeseen circumstances that lead to stockouts. Here are the five most common causes of stockouts:
- Imprecise forecasts: Inaccurate customer demand forecasting can result in stockouts or overstock. Accurate inventory forecasting is essential to avoid or mitigate stockouts. Most ERPs aren’t sophisticated enough to do this adequately on their own and should be supplemented with an inventory optimization solution like GAINS.
- Inaccurate records: Inaccurate inventory counts, often caused by human error, such as miscounting, incorrectly typing the wrong number, or misplacing items, can lead to stockouts.
- Supplier delays: Issues acquiring raw materials or supplying parts to manufacturers can lead to delays and stockouts. This can typically be overcome by using a diversified supplier network. This impact can be lessened through effective Sales and Operations Planning (S&OP) with a solution like GAINS.
- Manufacturing holdups: Production issues, such as labor shortages, equipment malfunctions, and poor planning, can lead to manufacturing delays and subsequent stockouts. These issues can sometimes be caught early enough to mitigate their impact by maintaining solid relationships with vendors throughout your supply chain, like GAINS customer Benco Dental.
- Logistics issues: Environmental factors also have a role to play. Natural disasters, vehicle breakdowns, roadway accidents, or mechanical problems can delay production schedules and prevent necessary materials or goods from being delivered on time, leading to stockouts.
On the other hand, you may be dealing with excess inventory or overstock situations. Excess inventory occurs when you have more than you need and cannot sell it as fast as predicted. This can lead to various issues, including increased carrying costs, decreased cash flow, and the need for additional storage space. Suppose you have a lot of excess inventory. In that case, it is a sign that you need to more effectively manage your inventory levels and plan with advanced insights regarding lead times and demand sensing.
Five Causes of Excess Inventory
- Inadequate forecasting tools Due to the limitations of ERPs or Warehouse Management Systems (WMS), supply chain pros are often hindered when it comes to statistical demand forecasting. Using Excel spreadsheets for forecasting is insufficient and often results in inaccurate inventory forecasts and over or understocking inventory. Check out this recent GAINS webinar for more.
- Seasonality blind spots Planning without considering seasonal demand fluctuations can lead to excess inventory. For instance, selling garden furniture to the Midwest market and overstocking in September will lead to selling the surplus at a discount. Suppose you fail to identify items affected by seasonal demand and have accurate lead times to ensure your orders are delivered within the selling season. In that case, your inventory for these items will never be right-sized.
- Product life cycle neglect Failing to recognize the changing demand for products throughout their life cycle can lead to overstocking, especially during the decline phase. Continuously adjusting forecasts and reordering parameters accordingly is crucial to prevent obsolescence.
- High service level trade-offs Ordering excess inventory to ensure high stock availability may compromise profitability. While customer satisfaction is essential, carrying too much stock can be costly. Using the GAINS platform’s Service Level Optimization algorithms, users can automatically determine service levels for each unique item and achieve their desired service level targets.
- Supply chain disruption The pandemic and other issues outlined above have forced many businesses to buy surplus stock to help manage supply chain disruption and demand surges. However, when the situation stabilizes, companies may find themselves with excess inventory.
Another sign that you may be behind the eight-ball regarding inventory is if you are constantly absorbing rush charges on orders or deliveries. Rush orders are costly and can quickly eat into profit margins. If you are always running out of stock and placing rush orders to meet demand, it’s a sign that you need to be more effectively planning your inventory levels.
It’s Time to Change the Game and “Call Your Shot”
So, how can you get ahead of the game regarding inventory? Here are a few tips to help you improve your inventory management practices.
- Invest in inventory optimization software like GAINS to help track inventory levels, sense demand changes, and continuously make informed decisions about when to place orders. Using GAINS, you can streamline your inventory management processes, optimize your service levels, and fulfill your promises to your customers.
- Improve your forecasting techniques. Accurate forecasting is crucial to avoiding stockouts and excess inventory. Use historical, exogenous, market trends, and customer demand to create accurate forecasts. Consider using inventory optimization solutions like GAINS, which uses AI algorithms to improve demand planning and automate many mundane decisions on your behalf.
- Diversify your supplier network. Relying on a single supplier increases the risk of supply chain disruption, delays, and stockouts. By having multiple suppliers, you can spread the risk and ensure a stable and resilient supply chain.
- Maintain strong relationships with vendors throughout your supply chain. By communicating regularly and collaborating closely with your suppliers, you can identify potential issues early and mitigate their impact.
- Implement a robust Sales and Operations Planning (S&OP) process. S&OP is a collaborative process involving all supply chain stakeholders, including sales, marketing, production, and logistics. By working together, you can align your inventory levels with customer demand, identify potential bottlenecks, and ensure a smooth supply chain.
“Sinking the Eight-Ball”
Effective inventory management is critical for every business to get right, especially in times of uncertainty. So, what steps can you take to avoid being “behind the inventory eight-ball” and optimize your inventory levels, reduce costs, and improve customer satisfaction?
- Identify the warning signs: like frequent stockouts, overstock, and expedited orders.
- Address the root causes: Inadequate forecasting, lack of visibility, and limited supplier diversity.
- Implement best practices: Improved planning, regular inventory audits, and accurate inventory tracking and management.
- Partner with GAINS, a trusted supply chain planning solution to right-size your inventory.
Contact us to schedule a demo and learn how your company can “move forward faster” with GAINS!
Companies Turned to GAINS to Optimize Inventory and Transform Supply Chain Decisions