Reasons for keeping inventory
What availability issues keep you awake at night? | 5 signs that you need more stock!
One of the main reasons for keeping inventory is to provide customers with the best possible level of service. However, many business leaders still spend sleepless nights worrying about finding the balance between product availability and supply chain cost.
What are the main reasons for keeping inventory?
Inventory is required to satisfy customer demand. However, the actual level of inventory required is influenced by a number of factors:
• Volatility in supply
• Supplier constraints such as minimum order quantity
• The stocking strategy in place
• contractual service level agreements with customers
• Purchasing economies of scale & cost optimisation
• Minimisation of delivery costs
• Level of service expected by the customer
Are you holding enough inventory?
While too much stock can kill margins, too little can be equally as destructive to service levels. After all, how can a business compete if it is not able to fulfil demand in a timely manner?
Based on our experience of working with over 950 organisations across the world, we have outlined the most common signs that a business has availability issues:
1. Too many empty shelves that should be full
The first and most obvious indication that a business has availability issues is empty shelves. Of course, purchasing stock just to keep the shelves full is not a reason for keeping inventory. However, it could be a sign that something is wrong. Furthermore, where there are empty shelves in one part of the warehouse, this is often mirrored with a high level of excess stock elsewhere in the business.
2. An excessive amount of backorders
For many businesses, backorders are a kneejerk reaction to stock outs situations. Although customers may be willing to wait for the stock to become available on the odd occasion if backorders become the norm this can seriously hamper customer satisfaction. If the same products end up with backorders every month, questions must be asked as to why there is never enough inventory in the first place!
3. Over-dependence on air freight & express delivery
From time to time, it is necessary to invest in air freight to ensure that there are sufficient levels of inventory in the short term to satisfy demand. Yet, the additional cost involved in shipping stock via air or utilising express courier services can quickly erode margins. Consequently, as a long-term solution for securing availability, this is at best sub-optimal. Much like with backorders, products that regularly have to be bought in on rush urgent orders should be investigated.
4. Angry customers
If the first time a business notices that they have an availability issue is when customers complain, there is a real problem. After all, by this point, it's far too late to do anything about it. Even so, every customer complaint should be reviewed to outline the true source of the problem.
5. Poor sales figures
At least with customer complaints, the business is given an opportunity to at least try and rectify the issue in the future. In the vast majority of cases, however, availability issues will force the customer to take their business elsewhere. In the short term, this will result in missed sales opportunities. More importantly, there is a very real chance that the customer will never return again. As such, availability issues have a profound impact on sale turnover!