Inventory management is a critical aspect of running a successful business. It involves purchasing SKUs based on buying history, storing those SKUs, and ensuring they’re in the right locations at the right time for buyers. Effective inventory management ensures that businesses have enough products to meet customer demand while minimizing the costs of holding excess inventory. However, inadequate inventory management can lead to lost sales, negatively impacting a business's bottom line.
Image Courtesy: US Census Bureau
U.S. wholesale inventories ended January at an impressive $929.7 billion, a 0.4% dip from December 2022 and surprisingly up 15.9% compared to last year! Although this seems like great news, some businesses lose significant money each year due to lost sales caused by poor inventory management. This blog will discuss identifying and preventing lost sales due to inventory mismanagement.
Lost sales due to inventory can occur for various reasons. Here are some common reasons for a lost sale:
Stockouts occur when a business runs out of a particular product. Customers may visit the store or website looking for the product, but it is unavailable. This can result in a lost sale and is also perceived as poor customer service as customers look for the product elsewhere.
Overstocks occur when a business purchases too much inventory and cannot sell it before it becomes outdated or obsolete. Overstocks tie up capital and storage space, making purchasing new inventory and meeting market demand challenging. It can also lead to losing sales as businesses may need to resort to discounting the overstocked products to clear the inventory.
Seasonal demand can also lead to lost sales. Businesses that fail to correctly anticipate seasonal demand for particular products may not have enough inventory to meet demand during peak seasons. This can result in lost sales, as well as permanent customer loss due to disappointment in product availability.
If a business underestimates demand, it may not have enough inventory to meet consumer demand, resulting in lost sales. If a business overestimates demand, it may purchase too much inventory, leading to overstock and tying up capital and storage space.
Now that we have identified the most common reasons for lost sales due to inventory, let's discuss how to combat the lost revenue.
Accurate inventory management is crucial for minimizing lost sales. Businesses should regularly monitor their inventory levels and reorder products before they run out. They should also use inventory management software to track inventory levels and streamline ordering to ensure enough stock. Accurate inventory management ensures that businesses always have enough inventory to meet demand. Investing in Thrive’s advanced technologies that optimizes your ERP purchasing system with the help of AI and machine learning is the key element in successful inventory management.
Out patent-pending digital product Tiltmeter® increases the speed at which your existing purchasing system reacts to demand and supply changes, accounting for hundreds of thousands of SKUs across multiple locations.
The rapid alert system in Tiltmeter automatically alerts your team and requests validation of significant changes. Buyers can then adjust inventory settings based on the new forecasts to reduce up to 50% of lost sales while also decreasing stockouts and dead stock.
Safety stock is additional inventory that businesses keep on hand to ensure that they have enough inventory to meet unexpected increases in demand or delays in the supply chain. Safety stock can help businesses avoid stockouts. Businesses should determine the appropriate amount of safety stock based on their sales history and lead times.
Efficient supply chain management is essential for preventing lost sales due to inventory. Businesses should work closely with their suppliers to ensure they can deliver products on time. They should also consider using multiple suppliers to reduce the risk of supply chain disruptions. Efficient supply chain management ensures businesses always have enough inventory to meet consumer demand.
Automated inventory management can help businesses streamline their processes to minimize lost sales. Automated inventory management software, such as Thermostock® and Tiltmeber, can track inventory levels in real time, automate the ordering process, and provide insights into inventory trends.
Inventory replenishment planning is essential for preventing lost sales due to inventory. Businesses should use historic data and forecasts to plan inventory levels and order cycles. When developing inventory replenishment plans, they should also consider safety stock, lead times, and seasonal demand.
Inventory rebalancing is the process of shifting inventory from locations with too much stock to locations with too little. Thermostock Rebalance can help with this, as it recommends a monthly rebalance of overstocked low-volume items to other locations that are still selling those items. This helps ensure that businesses have enough inventory at the right places at the right times to meet customer demand, as well as prevents unnecessary new inventory purchases and lowering the COGS.
Businesses should regularly review their inventory levels and redistribute as needed to prevent lost sales due to stockouts or overstocking.
Lost sales due to inventory can significantly impact a business's bottom line. However, businesses can prevent lost sales by implementing accurate inventory management, reacting to demand quicker, safety stock, efficient supply chain management, and automated inventory management.
Accurate inventory management ensures that businesses always have enough inventory to meet customer demand, while demand forecasting helps businesses anticipate customer demand and adjust inventory levels accordingly. Safety stock can help businesses avoid stockouts and prevent lost sales, while efficient supply chain management ensures that businesses can deliver products quickly and efficiently. Finally, automated inventory management can help businesses streamline their processes and prevent lost sales.
About Thrive Technologies
Thrive Technologies is committed to solving supply chain planning issues for inventory-intensive companies without requiring expensive risky software implementations. Thrive has developed patent-pending technologies that analyze billions of rows of inventory data and have reduced dead stock by 43.5% in 4 months. Thrive’s inventory solutions are live within days, integrate closely with clients’ ERP systems, and provide unprecedented agility in managing unpredictability and change in demand and supply chains.
For more information, please visit Thrive Technologies at www.thrivetech.com or follow them on LinkedIn, Facebook or Twitter.