5 Huge Inventory Management Mistakes That Can Cause Lost Sales

This is a guest post from Jimmy Rodriguez is the COO and co-founder of 3dcart, an ecommerce software to build SEO-friendly online stores. He's dedicated to helping internet retailers succeed online by developing digital marketing strategies and optimized shopping experiences that drive conversions and improve business performance.

Are you running a small business without much experience in inventory? Or, are you a large business looking to restructure your inventory management? Whatever the case, you may be experiencing a whole host of inventory control problems that are leading to lost sales.

You may be thinking to yourself, “I don’t have any issues with inventory management; we’ve run things the same way for years!”

Unfortunately, that could be a problem in and of itself, so don’t write off these mistakes so quickly.

Some inventory mistakes can be solved relatively easily if caught early. However, some problems can have major effects on your business and result in millions of lost sales. Issues with inventory control can hurt your business at every angle.

This includes employee efficiency, warehouse space, customer satisfaction and retention rates.

Your products are the heart of your business, so issues in inventory can bleed out and stain your entire company.

In this article, you’ll understand how:

• Proper forecasting of demand can help your inventory management.
• Inventory management software can make outdated process more efficient.
• Communication is key to fixing customer loyalty with your brand.

We’ll be going through some of the most common inventory management mistakes, how to solve them, and how to prevent them from ever happening again.

Let’s get started.

Mistake #1: Too Much Inventory

It may seem like a good thing to have a warehouse full of products ready to sell to eager customers at a moment's notice.

But it can be very much the opposite – excess inventory can cost a business big time. With too much of the wrong product in stock, your warehouse may end up filled with products that are collecting dust and costing you money.

At the same time, you may be running out of space to store products that you need to keep a constant stock of.

This can all spell disaster – and lost sales – for any business, big or small.

By wasting your warehouse space with products that don't sell, you might not have room for your profitable products.

Then, you’re met with the out-of-stock dilemma.

This can deter once-eager customers from coming back to your store when they’re met with disappointment.

Having too much of the wrong product occurs when a business invests heavily in stocking a trending item.

Once that trend inevitably fades, you’ve lost out on a huge investment and wasted space in your warehouse.

At that point, you need to figure out how to get rid of it – which can be its own hassle.

How to Solve Excess Inventory

If you have too much of a product that isn’t selling, try to think about ways that it can be reimagined to draw more appeal.

A pair of socks that aren’t selling well may do better bundled with a matching shirt. 

This strategy is advantageous if the excess inventory you’re dealing with is raw materials. Work with your product development team on new ideas that use your current stock to get it moving.

After you’ve tried that strategy, you may still have excess inventory that won’t budge.

At that point, it may come time to liquidate it or work with resellers to clear up that space for better-selling products. At the end of the day, products that aren’t selling are eating up money in storage fees.

How can you prevent this problem from ever happening again?

• Improve your demand forecasting.
• Be more conservative with stock orders.
• Use historical product data to analyse what’s selling and what’s not.
• Set up an inventory management chart

Mistake #2: Neglecting to Restock on Time

There are many reasons that stock can run out. We just discussed one example – lack of space for a substantial amount of stock in the first place.

The out-of-stock product could have also been a limited time product. Or, demand may have been unusually high for the inventory available.

Running out of stock isn’t a mistake, as it can happen to any business and can be resolved easily. 

The issue comes, however, when restock doesn’t happen quickly.

One major mistake that businesses make is waiting too long to restock inventory or not knowing their lead times.

This can leave a large gap in time that customers will need to wait for the product they want to become available. 

This is especially troubling if the product in question is a staple of your store and sells out frequently.

This can leave your store with too many “out of stock” notices, leading customers to feel disappointed every time they visit your business.

Disappointment is not a leading cause of return business; that’s for sure.

In fact, it’s one guaranteed way to ensure customers never return to your business and choose a competitor instead.

Keeping the right amount of stock levels in your inventory at all times is crucial – but this is especially true when it comes to seasonal shopping.

If you’re not anticipating what products may be in higher demand during certain seasons, your inventory may be in big trouble.

Think pool toys during the summer or tree ornaments during the winter.

If you run out of these products and don’t restock in time, you may be stuck selling summer toys in autumn or winter decorations in spring.

How to Solve Low Stock Levels

First things first, apologise to your customers for the inconvenience and thank them for their patience. No customer enjoys visiting your store after seeing an advertisement for a product they truly want, just to be met with an “out of stock” notice.

Be transparent and communicate with customers on how long they can expect to wait for new stock to arrive. (We’ll talk more about communication later on.)

Then, to patch up the wound, incentivize their continued business with coupons and discounts. When that item they really want comes back in stock, let them know that they can save big on it.

How can you prevent this problem from ever happening again?

• Put a system in place that automatically orders new stock at certain inventory levels.
• Set up notifications for certain stock thresholds (if you prefer manually ordering stock).
• Anticipate seasonal demand and stock hot items ahead of time to meet that.

Mistake #3: Inefficient Warehouse Organization

Any inefficient process in your business can ultimately lead to financial loss. In regards to inventory control, this is especially true for warehouse organization.

If your warehouse has products laid out in a way that isn’t efficient for employees, that can lead to a whole host of problems.

Namely, this can lead to order delays and inaccurate orders – which can result in refunds and loss of business.

One way that this manifests is organizing products and associated materials in places that aren’t beneficial.

For example, if packaging supplies are at one end of a warehouse and deliveries are on the other end, then the fulfilment path is inefficient.

The employee will need to gather the products, walk to one side of the warehouse to package it, and then walk all the way to the other side to drop it off.

This effectively doubles an order’s warehouse travel time.

Additionally, without the right warehouse organization, inventory may be difficult to locate or even be lost.

If your warehouse is too large for the amount of inventory you have, it can take more time than necessary for employees to fulfil orders. 

Also ensure your staff are well trained. If they need to assemble mailer boxes, for example, they need to know the most efficient process, and at what level they'll start to spend time folding packaging.

How to Solve a Disorganised Warehouse

First off, you need to start tracking your picking paths and pinpoint any detected inefficiencies. Are employees taking the same paths over and over to fulfil one order?

Is each step of the fulfilment process spread out too far, making warehouse travel times artificially long? Do employees get confused on where products or materials are located?

Once you understand where the worst inefficiency offenders lie, the work begins.

Focus on rearranging your warehouse or stockroom to eliminate any repetition or hiccups in the process. You may find it necessary to downsize your warehouse space to make the picking and packing process faster.

How can you prevent this problem from ever happening again?

• Use warehouse management software to keep employees organised on picking paths.
• Clearly label sections of your warehouse to keep employees from getting lost.
• Organise your warehouse like an assembly line so that each step is organised.

Mistake #4: Lack of Quality Communication

Communication is vital for any good business – both internally and externally. 

Businesses often make the mistake of not facilitating effective communication between departments.

For example, when your business is having a sale or promotion, you need the right amount of stock to meet that demand.

If the marketing department doesn’t make the inventory department aware of a new sale, then they may not have the necessary stock available.

Without the right stock level, your big sale product can sell out faster than you intended.

Every relevant employee needs a strong form of communication, so nothing gets lost, and processes stay efficient.

All inventory needs to be accounted for – even product packaging. If something gets misplaced, that could spell a huge financial loss for a small business. 

External communication relates to poor inventory management, as well. You must communicate with your customers clearly and regularly regarding your stock levels.

When a customer comes to your site for a product and finds that it’s unavailable, they want to know when it’ll be back.

And, when a product is running low, that fact needs to be clearly stated on the product page directly. Not only can this make your business more transparent, but it can also instil a sense of urgency.

Without this information, customers will have no idea how much stock you have left of a product.

How to Solve Bad Communication

It’s never too late to start communicating more transparently and effectively. First, clear up any existing miscommunication errors that need to be addressed immediately. 

Internally, this could mean sending out messages to entire departments, making them aware of any sales or changes.

If it’s something that your employees should know about and contribute to, keep them all on the same page.

Externally, it’s a good idea to inform your customers that you’re aware of any issues that may have occurred during fulfilment.

Apologise and let them know how you intend to resolve the issue. You can even turn the situation around in your favour.

For example, if you have a product out of stock with loads of hype surrounding its return, use that to your advantage. Create a marketing campaign with a countdown for when it’ll be back on your (physical or virtual) store shelves.

How can you prevent this problem from ever happening again?

• Look for the right team communication solution that fits your business needs.
• Use software to help streamline employee-to-customer communication.
• Automate customer messaging to not leave any customers out of the loop.

Mistake #5: Not Using Updated Software

While manual data entry and electronic spreadsheets may have been your tried-and-true for years, it’s time for an upgrade.

If your business is still using outdated forms of inventory management, you may be losing money in errors.

In fact, a study of spreadsheet errors found that just seven errors caused losses of up to $110 million.

Your training should be updated too.

If you’re manually training every new recruit with ancient methods, it’s likely taking you more than double the time it should have them working.

If your eCommerce platform isn’t sending data to your distributors, then data may get lost in translation. Orders may end up not being fulfilled, stock levels may turn up inaccurate, and money can be lost in the process.

Worst of all, if your data is backed up on physical drives, rather than in the cloud, there’s a large chance that your data can be damaged without recovery.

At the end of the day, excess errors and unreliable data organization equal profit loss. Anything you can do to eliminate as many errors as possible will help you to regain any lost sales.

How to Solve Out-of-Date Software

Before you make any changes, you’ll want to perform an audit to find out how your data management currently performs. Look into how your data is organised, where it’s stored, and what processes are in place to locate/enter/organise data.

Next, pinpoint any parts of your current inventory management process that are done manually – and don’t need to be.

Automate where possible to eliminate manual errors and speed things up. If you need new software, investigate the best available inventory management solutions.

Also, if you’re using any software that has a more updated version available, look into the benefits and drawbacks of updating to that software.

More often than not, a new update will add tons of new functionality that you never knew you needed.

How can you prevent this problem from ever happening again?

• Research software that may improve your data organization and inventory accuracy.
• Ensure that ALL necessary employees are properly trained in using any new software.
• Keep track of any resulting improvements from the upgrade and make necessary adjustments. 

Conclusion

It should be clear, at this point, that it’s not hard to make mistakes in regards to inventory.

Luckily, there are several ways to remedy an inventory control problem. Whether you’re starting your first business or restructuring your current one, keep in mind these inventory mistakes:

• Excess inventory can lead to wasted inventory space and loss of investment.
• Low stock levels without quick restocks can deter return business.
• A disorganised warehouse can kill picking path efficiency and extend order fulfilment time.
• Bad communication with employees and customers can create confusion and frustration.
• Out-of-date processes and software can cost your business money in data errors.

Did you recognize any mistakes that your business is making while reading this article? Let us know down below!