In the United States, there is roughly $50 billion of products and goods stolen by employees each year.
With this much product disappearing from shelves and having various vendors that your business orders from, inventory is crucial.
Keeping track of what goes in and out of your business will help save you time and money.
Continue reading to learn about why it is so important to do and how to avoid common inventory mistakes.
Why Does Your Business Need to Do Inventory?
There are many reasons why your business should be keeping track of inventory if you are not already doing so.
In order to calculate the costs of goods sold, you will need to do inventory. Taking inventory will also help reduce loss and theft because you will have the proper management in place and see if any items are being taken without orders coming in.
A lot of times, businesses use inventory as a way to get rid of old, outdated, and unusable products that have accumulated over time. There is no reason items should be piling up if you can’t make money off of them. Taking inventory gives you the chance to also see what isn’t selling in your company.
It is important to keep track of your products from the time you get them, to the time they leave the building. Many companies require financial help to get them started. Taking inventory will help prevent you from unnecessary spending from the beginning.
The 8 Most Common Inventory Mistakes
Taking an inventory can be a difficult task at the beginning, or always, if you’re not using a good system that is both efficient and accurate. Inventory mistakes are quite common for any business, especially ones that have many products.
Even small businesses’ may have a hard time getting inventory under control if it has not been previously done. Read our article on inventory in small business’ to help get a better understanding of what does and doesn’t work.
There are various platforms that you can use when taking and keeping track of the products your business has. You can take an inventory list on excel, specific inventory programs available on the computer, and if your business is small enough, by pen and paper.
Below are 8 of the most common inventory mistakes that happen and how you can try to avoid or fix them.
1. Too Many Products
Having too much inventory can be a bad thing when trying to cut costs and identify how many products your company still has. Ordering a lot of something may seem like a good idea if the product is trending, however, trends change quickly.
Besides having a pile of one product that you can seem to get rid of, another way of identifying if you are ordering too much is by looking at your waste.
Restaurants can usually keep track of orders that are too big if they are constantly throwing away perishable items. Finding a balance when ordering so that you can have enough for your customers but not be throwing a lot away, requires critical thinking and math.
It is best to track the companies’ weekly sales and projected growth in order to set the par for your items. There are many par formulas that your company can use to help prevent over and under- ordering.
2. Not Taking Inventory Frequently Enough
Taking inventory is a big project that many companies have to do during closed hours, and unfortunately, for some, they just aren’t closed long enough to do a complete inventory.
One way that companies avoid this issue is by taking mini inventories each week/ month. For example, clothing companies can spend a shorter amount of time by focusing on certain articles of clothing each time. Restaurants can also do this by counting dry goods separate from cold and freezer items.
Many businesses only do inventory once or twice a year, which could prevent any issues from being seen. Shrinkage and poor forecasting may not show if you aren’t doing inventory enough.
It is also difficult to stay on top of trending products and knowing what items sell during periods of the year. Doing inventory frequently will give you the opportunity to plan for upcoming years on similar orders and keep you from overspending.
3. Only Using Spread Sheets
In the past, spreadsheets were one of the only ways to keep track of inventory. Small businesses may be able to get away with this system if they do not have a large stock of inventory. However, this is an outdated system that can cause various problems.
Tracking inventory with spreadsheets or by hand on paper can increase your chances of taking inaccurate data, and is prone to error. Using spreadsheets is inefficient and could lead to your company completely overlooking products.
If an excel sheet or document is not constantly updated with new purchases, inventory will be off. It is often time-consuming to recreate and edit documents while doing inventory.
There are many online programs that your company can use to manage inventory. Some companies are partnered with specific vendors, making inventory a quicker process with fewer areas.
4. Too Many Product Variations
Having too many SKUs may not seem like a problem however, it can be if not handled properly. Purchasing the same type of product (but with multiple SKUs) can lead to confusion and inaccurate counting.
If the product looks the same and technically is, most people would tend to count them all as a whole. This can damage accuracy on your counts if the products come in various size boxes or are priced differently.
It is best to take time while doing inventory so that you don’t miss specific SKUs and count the product with another.
Another way that you can avoid this problem is by simply ordering from fewer vendors and getting fewer products. This will reduce your chances of error when recording your stock.
5. Improper Management
As with any other position in the company, there needs to be some form of structure and management. This is especially true when doing inventory.
In order to take accurate inventory, you should only have one or two people in charge. Having fewer people in charge can help ensure that it is being taken the same way every time and those employees have the most knowledge of how the system works in your company.
Having a large group of people take inventory (especially when the group is different people) can lead to larger errors and problems when tracking products. It is best to have an inventory manager and a few consistent employees take charge of this area.
Another reason it is important for proper management is so that there are fewer people to keep track of. This could even help prevent employees from stealing because only trusted and honest employees are a part of this team.
6. Product Movement
Product movement is especially important in the restaurant business, or anywhere that sells perishable goods. Doing inventory will help you easily identify which products aren’t and haven’t been going anywhere. It will also show you the items that are flying off the shelf.
Having this information is important because it helps your business track the items that you can’t keep enough of, this will allow you to purchase more and increase income. Depending on the business, there are many methods that you can use to keep track of products.
If your company is struggling to keep track of product movement, it is important to put someone in charge of this area. This person can be the one to track what is and isn’t leaving the building. Many POS systems can help make this task easier, but not all companies require these platforms.
Having only one or two people do this job will lead to more successful results. While this person is tracking movement that can also use the FIFO system. First in, first out (FIFO) is a great system that can save money and help further sales.
7. Hiring Unqualified Applicants
Hiring employees for inventory, that have no relevant qualifications can lead to major issues. It is important to only put those that a trusted and have a good history with the company that you should put in charge of inventory.
Training is also an important step in the inventory process because if it is not being taken in a consistent order, chances of error significantly increase. If the inventory is not taken in a uniform manner it raises the chances for the discrepancy between what was recorded and what is actually in the store.
One way that you can prevent this from being a problem is by checking out our tips on hiring. When you are in the interview process with an applicant you should be asking the right questions and calling references to confirm the reliable and trustworthy candidates.
One of the biggest mistakes that a company makes is not doing their research on applicants and then having even bigger loss problems. If you feel that you cannot trust the people/ person in charge of inventory, then it is probably time to make a change.
8. Products in Too Many Locations
If you have to go to multiple spots to get an accurate inventory, this should raise a red flag. Having items in multiple locations can lead to inaccurate counts and is simply just inefficient.
Having too many inventory and stock locations can increase your chances of completely missing areas. This is a big issue, especially if you forget to count an area with thousands of dollars worth of product.
Spreading out your products in various locations is also inefficient because employees then have to go to several areas, taking more time to complete the project. If an inventory is done several times a year, this time spent going from location to location can add up.
Keeping like products together can help you organize and keep track of what’s in the building. Having too many locations for products can also increase the risk of theft in the business and items simply disappearing because they are lost.
In order to avoid this problem, you should find or create specific areas for only certain products. Try to make the most out of your space and avoid cluttering. If items are all piled on top of each other it is likely that they will be missed when counts are going.
Avoid Headaches and Waste in the Business
Inventory issues can lead to headaches, theft, and a lot of money disappearing for the business. It is important that you try to avoid these inventory mistakes so that you can get the most accurate numbers of stock.
Taking inventory is necessary for all businesses, regardless of how big or small they may be. Keeping product ordering under control can help you identify where you are making your money and the areas that you are losing it.
Anyone in charge of inventory should be sure to train employees well on the process and programs that you use. Keeping products low and having less accumulation leads to more accurate counts, as does keeping stock in fewer areas.
Before taking your next (or first) inventory, you should consider these tips on common mistakes and be sure to do plenty of research. Some companies are so large that they have to hire third parties to complete the task.
Getting control of inventory can save your business time and money, check out our article on even more ways to increase revenue.