Business 4.0
How Bad Inventory Management Can Impact Your Firm's Organizational Performance
By: Kristie Wright
B
ad inventory management can cost your company tremendous amounts of time, money and, ultimately, its chances of success. It can heavily impact any business’ organizational performance, leaving it with lackluster profit margins and elevated overhead expenses as a result. No business is exempt from the effects of poor inventory management. Even multinational corporations like Walmart know first-hand just how much a disorganized inventory can cost them. The aforementioned grocery chain giant lost a whopping $3 billion to poor inventory control back in 2013, and suffered regular stock-outs for months after the fact. If this is how improper inventory practices and protocols affect massive corporations, it might be easy for you to imagine how the same mistakes could affect your business. These mistakes have led to many manufacturers closing their doors and have left others struggling amid seas of debt and organizational challenges.
Big Risks for Manufacturing Firms The risk of losing your business is reason enough to accept that bad inventory management is worth avoiding. This sort of fundamental problem with your firm can negatively affect your bottom lines and can even hold your company back from its long-term growth goals. Manufacturing and fabrication firms can be particularly hard-hit too. They rely on a structured inventory of materials and goods to maintain their strict organizational performance.
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10 IMD MARCH 2021
Studies have conclusively shown that firms that don’t properly manage their inventories aren’t equipped to avoid the costs of evolving production rates, overtime, unnecessary costs of sales, sub-contracting, and back-order penalties during times of high demand. This can lead to problems with cash flow and slim profit margins, as well as organizational challenges like a lack of alignment, accountability, and trust in managerial staff.
The Signs of Substandard Inventory Management There are dozens of telltale signs to look for that indicate bad inventory management within your business. These signs will vary from industry to industry, but there are several parallels between them. Obvious signs of poor inventory control include: » Frequent stock-outs » Consistently high inventory costs » Low or decreasing inventory turnover rates » Large amounts of obsolete inventory » High working capital rates » Excessive material and product storage costs » Errors in data entry for spreadsheets » Shipping incorrect items to customers and clients » A consistent loss of customers » Imbalanced lead times
