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High Inventory Levels: Overcoming the Challenge


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High Inventory Levels: Overcoming the Challenge

Many businesses fall in the pray of adding more finished goods inventory, purchasing large quantities of raw materials and run large order quantities, which results in large quantities of in stock inventories. These large inventories have devastating effects on the investment costs, business margins, and often on customer satisfaction. Instead of lowering costs, raising customer satisfaction and improving profits, answers for the above questions can often lead to obsolete stock, high production cost and reduced profits. In real time scenarios, these material costs represent around 75% of the total business cost. Hence, in order to achieve success in a manufacturing business, we need to manage our inventory with utmost criticality.

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What is High Inventory level? Having high inventory levels in your warehouses generally means your company is struggling to manage its inventory and make proper sales. Inventory is the main source of our revenue, so it is essential to make smart decisions about how much inventory we have, how much safety stocks we should store in our warehouses, and how much we need to reorder to balance our demand supply chain.

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Pros of holding excess inventory

■ Quick response time While comparing high inventory stocks and out of stock situations in peak customer demand times, obviously out of stock situations are definitely worst. In today’s world of a competitive market, if we don’t satisfy our customer requirement quickly, we will lose them to our competitors. Having high stocked warehouse definitely facilitates quick response to market requirements and avoid any waiting time due to shipment delays. ■ Decreased risk of shortages Updated stocks in hand, help you to satisfy your customer requirements even if the products are discontinued or out of stock at the movement. Also, in cases of demand shifts and out of stock competitors, we can meet the demands of the customers by providing our stocked products and give promotional offers to improve our customer relationships and increase sales. ■ Protection Against Order Delays Many business loose long term customer due to delay in supply from natural calamities and delayed shipments. In the peak demand times, we can supply our excess stock to the customers and gain their trust for a long term business relationship. In some cases, suppliers are delayed due to factors beyond their control and excess stocks help us to continue our business production without any delays and customer distress.

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Cons of holding excess inventory ■ Restricted Cash flow The amount of inventory we have in our stock is directly proportional to the amount of business capital we have. With huge stocked up warehouses, our business cash flow also gets restricted and we have less money to invest on the new stocks and other business requirements.

■ Risk of inventory becoming obsolete In the current era of online shopping and constantly changing trends, the value and quality of products decrease the longer they are stocked up in the warehouses. With fast changing technology and customer requirements, products like smartphones and gadgets become outdated in every six months basis. We need to make sure we sell our perishable and fast moving products at the earliest to avoid any losses for the organisation. If any product is outdated and we have many unsold items, we might end up selling these excess products at lower prices than the produced one and incur a huge loss for the firm.

■ Risk of item not selling With the huge amount of stocks in hand, we increase the risk of misjudging the demand of the product in the near future and end up having the products not sold at all and keep it for next season or forever due to no market demands. This causes huge investment losses to the firm.

■ Higher storage and maintenance cost Huge stock means massive storage space and huge insurance along with a larger amount of manpower and warehouse maintenance cost. This also increases the overall price of the product which will again reduce our sales and incur a loss for the business. With huge investment on maintenance and procurement of the products, the firm usually increases the cost of the product which ends up losing the market value to its competitors because the price of products will be high in comparison to other sellers. Also, labour cost involved along with warehouse maintenance, electricity charges, security and other changes increases the expenditures of the organisation for the upkeep of the huge amount of inventory stocks.

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How can you keep the perfect inventory balance? Supplier lead-time reduction Higher lead times from the suppliers are one of the major reasons for delay in product delivery, which causes businesses to stock up the safety stock to avoid delay in production. As businesses, we need to negotiate for a faster lead time from the suppliers to make sure both the inventory level and transportation costs are minimised. Effective planning of current stock usage and reordering should be done to effectively reduce the overall cost of procuring and storing the inventory for the production cycle. Many effective ways of inventory ordering like partial and staged orders, strict cycles of inventory at the same time in each month, just in time ordering and many other ways can be implemented to improve the lead time of the items.

Eliminating obsolete inventory Obsolete stock items are the products that are stored in the warehouses but do not have any current customer demand. Reducing these obsolete stocks is very critical for business growth. Removing the old stock may sound quite simple but isn’t always done effectively. Inventory prioritisation methods help in selling high quantities of obsolete items first by rotating old stock. Obsolete items usually occur when newer product launches of an item or new releases of the products are launched in the market and customer demand changes the market demands for the old products. As efficient business planning, an organizations should make futuristics plans and understand the market trends before ordering any particular item. Dynamically tracking demand patterns helps in demand forecasting and understanding the market trends and customer demands before procuring any particular item. Also, promotional offers and discounts on the old stock will help to clear out old stocks and free up the working capital to be invested in new stocks. Also, the holding cost and maintenance of the warehouses can be considerably reduced with regular movement of old and obsolete stocks and make space for fresh and more demanded products.

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How can you keep the perfect inventory balance continues... Optimizing order size and purchasing frequency Accurate demand forecasting and just in time orders can help in ordering the approximate amount of inventory needed for production and keeping minimum safety stocks at the same time avoiding any excess inventory orders. Reduced Minimum Order Quantities (MOQs) methods can be implemented so that smaller, more frequent orders can be done instead of storing a large amount of inventories in the warehouses. Frequent and smaller orders allow organizations to increase ordering exibly in cases of demand shifts for products.

Centralizing inventory control With the help of centralised control of inventory through stock maintenance software like SalesBabuCRM, a cloud based database can be maintained to keep a track of every inventory coming in and moving out of the warehouses. Also, various metrics and stats generated can help to forecast customer shopping trends and product to maintain transparency in ordering and maintaining appropriate safety stocks. Continuous inventory reduction analysis SalesBabuCRM software helps to generate various analysis to create metrics in understanding the shopping trends and market demand which help in forecasting product requirement. With these proactive measures, proper ordering and product rotation methods can be implemented to reduce overall Inventory levels and storage cost for the business.

Copyright Reserved @ 2019 SalesBabu Business Solutions Pvt Ltd. Website: www.salesbabu.com Email: sales@salesbabu.com


Contact Us: M: +91 9611 171 345

Conclusion

Inventory management can be a boom for the business but can turn into a curse if not managed properly. So with an eective management tool like SalesBabu purchase and inventory CRM, we need to strike a balance to maintain the optimal amount of stock in our warehouses.

Copyright Reserved @ 2019 SalesBabu Business Solutions Pvt Ltd. Website: www.salesbabu.com Email: sales@salesbabu.com


Contact Us: M: +91 9611 171 345

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Copyright Reserved @ 2019 SalesBabu Business Solutions Pvt Ltd. Website: www.salesbabu.com Email: sales@salesbabu.com

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High Inventory Levels: Overcoming the Challenge  

Inventory management can be a boom for the business but can turn into a curse if not managed properly. So with an effective management tool...

High Inventory Levels: Overcoming the Challenge  

Inventory management can be a boom for the business but can turn into a curse if not managed properly. So with an effective management tool...

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