As the manager or owner of a business focused on providing customers with a high level of service while targeting a specific inventory value or stock control, you will most likely have experienced the frustrations and difficulties in achieving the desired results. Inventory risks are potential circumstances where an association can’t keep its tasks in sync with its planning due to receiving its inventory late or early.
So why is it such a struggle? Let’s have a look at the details
The main purpose of carrying inventory is to provide customers with their expected level of availability or service whenever they ask for your product. In other words, you need the right quantity in stock at the right time.
What are the Inventory Risks?
There are inventory risks on both sides of your business – on both the supply side and the demand side.
Supply-side inventory risks
There are three components to the supply side inventory risks – the reliability of the supplier’s delivery to their agreed lead time, their adherence to the quantity ordered, and the spread of the deliveries in terms of days early and days late.
- Delivery – if your supplier continually delivers early, you have more chance of generating excess inventory; if your supplier continually delivers late, you have more chance of stocking out.
- Quantity – if your supplier continually delivers more than you ordered, you have more chance of generating excess inventory; if your supplier continually delivers less than you ordered, you have more chance of stocking out.
- Reliability – if your supplier agrees to a lead time of 10 days but sometimes delivers in 16 days and sometimes in 8 days, you swing from having too much to stocking out. The wider the gap between early and late deliveries, the bigger the level of uncertainty and risk.
Demand-side inventory risks
Demand-side inventory risks relate to how well you are able to forecast demand in your business. While computing forecast accuracy is important, it is even more important to understand the impact of the direction of any error.
- Inaccurate forecasting – while you may not think you are actually forecasting in your business, whatever you use to determine what to order is in essence your forecast. How well you do have a significant impact on your ability to minimize stock-outs and reduce inventory simultaneously.
- The importance of the direction of any error – if you over-forecast demand (you believe you will sell more than you actually end up selling), then by buying to that forecast you are more likely to generate an excess inventory. If you under-forecast demand (you end up selling more than you thought), you will run a much bigger risk of running out of stock.
The risks in data quality
Accurate inventory data such as stock on hand quantities or outstanding purchase orders are as important as getting a handle on the supply and demand risks in the business. Without accuracy in your data, any inventory planning will be an approximation at best.
Taking weeks to prepare the data for ordering purposes and then placing orders with information that is out of date also creates risk for your business.
Exceptions and Alerts
A lack of metrics to identify existing inventory risks as well as risks not yet obvious further compounds the situation.
- A Potential stock-out alert that warns of potential stock-outs before they occur is priceless
- Knowing how to identify the excess stock that can be disposed of without compromising customer service levels addresses a problem already existing in your warehouse
- A Surplus order alert warning that the quantity on order from a supplier will create additional excess stock allows for proactive resolution before it becomes a problem
Relieving Inventory Risks with GOIS
Each business, regardless of how large or little, faces stock dangers constantly. At each period of organizational growth, you should need to develop relevant business techniques backed by optimized solutions. GOIS offers flexible, versatile inventory management software that assists you with moderating inventory risks and defend your business advantages. With our wide skill in serving various ventures through their development, we feel pleased to have made different modules, automation workflows, and intuitive dashboards that will assist you with breaking down and accept proactive measures on a case-by-case basis.