While companies face many different challenges, some common inventory management issues arise again and again. Supply chain leaders should learn about these frequently occurring problems so they can attempt to prevent them at their own organizations.
Inventory management is essential for meeting customers' needs, but many issues can occur. Incorrect stock levels and long lead times, among other issues, can all lead to problems such as customer dissatisfaction.
Here are 20 of the most frequently occurring inventory management problems.
1. Rapidly changing customer demand
A company should ideally hold enough of each inventory item to meet customer demand through regular and peak seasons, but circumstances can quickly alter customer demand. For example, a colder-than-predicted winter may increase demand for winter gloves.
A strong understanding of customer needs and accurate demand forecasting can help solve this issue.
2. Inaccurate data and analysis
Demand forecasting is essential for understanding future customer purchasing decisions and ensuring sufficient inventory.
Any errors in data inputs or forecasting algorithms can result in poor demand management and insufficient stock levels.
3. Reordering delays
Companies replenish stock after selling products to customers and identifying a need for restocking.
However, employees who reorder items must plan for lead time, which is the time between creating an order and the goods arriving at the warehouse for distribution. Any delays to the reordering process can increase lead times and result in product availability issues.
4. Poor production planning
Poor production planning can also delay customers receiving goods.
Manufacturing issues caused by lack of production planning can include lack of raw materials if ordering is not carried out correctly, machines breaking down if parts are not ordered and lack of workers for production lines if scheduling is not carried out correctly. However, integration between inventory management and production planning can resolve many of these issues.
5. Inventory defects and waste
Mistakes in sourcing and manufacturing processes can result in defects in millions of products, which leads to product recalls, inventory destruction and dissatisfied customers.
Companies can reduce this waste by following approaches like Lean Six Sigma, which can help optimize production lines and avoid errors.
Other problems that cause waste are theft, goods being damaged in transit and poor storage conditions. Companies must take preventative measures like ensuring items are stored properly on delivery trucks.
6. Ordering errors
Employees must ensure they're ordering the correct type of a product so the company can meet customers' needs.
For example, an employee may accidentally order blue shirts instead of black shirts, resulting in a lack of needed inventory.
7. Capital that's tied up in unused inventory
Retail companies often run on thin profit margins, so a healthy cash flow is crucial. Inventory can account for a large amount of working capital and tie up significant funds in unused or slow-moving products, which reduces the amount of free cash a company can invest in future product development and inventory.
To avoid this lack of capital, many companies embrace just-in-time manufacturing so cash is only tied up for short periods.
Ordering too much of a product can be worse than ordering too little. Unused or slow-moving inventory takes up storage space and uses up capital until employees dispose of it or the inventory is sold at a significant discount, resulting in losses.
Accurate demand forecasting and faster manufacturing can lead to better alignment between demand and inventory levels.
9. Improper inventory storage
Inventory management must include tracking use-by dates for products like food, pharmaceuticals, chemicals and any other items that can deteriorate in quality or become unsafe. Many of these types of products must also be stored in carefully controlled environments to ensure quality and freshness.
Meanwhile, storing inventory in the wrong place can result in pickers taking longer to find an item, which can cause order delays and reduced employee productivity.
10. Multiple stock storage locations
Companies that ship orders to different countries may store the same products in many different warehouses, which can lead to confusion over inventory levels.
Managing stock across multiple facilities often requires advanced inventory controls and rerouting of products to ensure availability in each area.
11. Lack of transportation capacity
Companies must transport goods from point to point via their logistics networks, so inventory management must include planning for that transportation and ensuring that transportation providers have the capacity to move goods efficiently.
Many companies outsource these tasks to freight and transportation brokers or third-party logistics services.
12. Lack of warehouse space
Storage space is often limited at warehouses, so inventory management must include planning for warehouse capacity so employees can store items safely and in the correct manner. For example, workers must store milk in a refrigerated area.
Some companies use backup warehouses for peak seasons to solve this problem.
13. Lack of attention to fast-moving items
In-demand products move through the warehouse quickly, which can cause errors such as miscounting goods when they arrive at the facility, storing them incorrectly or picking and packing them incorrectly.
Inventory management should include counting fast-moving products more often to prevent inaccuracies.
14. Reliance on manual processes
Some companies may not be able to afford inventory management software and instead rely on manual ordering and stock counting. Doing so can lead to ordering and counting errors.
Inventory management platforms can reduce inefficiencies and improve inventory handling, replenishment and fulfillment.
15. Lack of required packaging
Storage and distribution of products relies on access to the correct packaging and labels.
Inventory management must include ensuring that pickers and packers have enough of these materials to protect products and get them to customers undamaged.
16. Delaying inventory counting
Counting physical stock levels and comparing the data to expected inventory levels in a company software system is known as inventory counting. Inventory counting discrepancies are caused by factors including product mislabeling, storing products in the wrong place and theft, among other factors.
Some warehouses are so large that employees may only count products every few weeks or months, and delays in counting make it more difficult to investigate the reason for errors and prevent a reoccurrence. Inventory counting is labor-intensive but enables companies to identify and act on any discrepancies.
17. Pausing warehouse operations
Older inventory counting methods may require a warehouse to stop receiving inventory or fulfilling orders so employees can accurately count items. Halting warehouse operations can delay customer orders.
Modern inventory cycle counting systems can resolve this issue by enabling real-time counting and adjusting expected levels as goods are received and distributed.
18. Lack of data transparency
The sourcing, manufacturing, transport, storage and fulfillment of inventory involves multiple companies across complex supply chains, so data transparency is essential.
Inventory management platforms enable sharing of information between all parties, which improves operational efficiencies.
19. Poor integration with other software and systems
An inventory management platform must be properly integrated with other software.
Lack of integration with an ERP or other systems makes it more difficult to send orders and locate products, among other problems.
20. Lack of supply chain agility
Geopolitical tensions, tariffs and other factors can affect supply chains. Inventory management must include putting contingencies in place.
These contingencies can include investing in real-time tracking, data sharing and forecasting as well as finding backup suppliers.
Paul Maplesden creates comprehensive guides on business, finance and technology topics, with expertise in supply chain and SaaS platforms.