5 Costly Mistakes Retailers Make with Inventory Optimization

5 Costly Mistakes Retailers Make with Inventory Optimization

Head of Marketing at Flieber

You want to implement inventory optimization processes but don’t know where to start.

You want to avoid reinventing the wheel and don’t want to make the mistakes made by hundreds of retailers who came before you.

You’ve come to the right post. 

Maybe your retail operation is growing, and you’ve started to struggle to manage inventory using your old processes. Or you are spreading to multiple channels and wrestling with omnichannel retail for the first time. Perhaps you’re not feeling growing pains just yet, but you want to prepare for the future to sync sales pace and inventory appropriately and effectively now and in the future. 

Regardless of where you are in your journey, this post will help you avoid the most common pitfalls of inventory optimization. 

This post will go over the top five mistakes we’ve seen retailers make when implementing inventory optimization. Armed with the information in this post, you’ll have everything you need to avoid making these same mistakes. 

 

What is Inventory Optimization? 

Let’s take a few steps back before diving into the mistakes you’ll want to avoid when optimizing your inventory. What is inventory optimization, and what does it mean for your business? 

Inventory optimization is a process by which you can calculate when and where your inventory should be replenished and distributed across locations, warehouses, and more. You’ll also use this process to understand which stock to replenish and in what quantities. 

 

Related: A Look Into Supply Chain Optimization For Amazon Aggregators

 

You must master inventory optimization to run your business efficiently and effectively. Some of the benefits of nailing inventory optimization include:

  • Increased Sales: When you optimize your inventory, you can prevent stockout. When customers can always purchase the product they came to your site looking for, you’ll see a bump in sales. 
  • Increased Available Capital: Optimizing your inventory also prevents overstock. When you’re not trying to store dozens of pallets of unnecessary products in your warehouse, you’ll be able to save money on storage costs and unneeded stock, increasing the capital you have available to invest in other areas of your business. 

  • Increased Supply Chain Visibility: When you optimize inventory processes, you aggregate all your data (sales history, inventory positions, lead time, and more) into a single location. This aggregation gives you additional visibility and insight into your inventory processes and supply chain. 

Flieber has helped dozens of businesses in the direct-to-consumer space navigate the inventory optimization process. In that time, we’ve seen the challenges and mistakes that most businesses fall into—and we’ve learned how to avoid them. Let’s take a look at the top five mistakes we’ve seen retailers make. 

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1. Tracking Inconsistencies and Data Issues 

The first mistake many retailers make regarding inventory planning is tracking inconsistencies. If you’re selling across multiple channels, you may use multiple software solutions or spreadsheets to manage that data. This manual compiling process opens the door to a multitude of issues.

 

Related: 4 Best Demand Planning Dashboards (With Good and Bad Examples)

 

Using spreadsheets feels like an unavoidable process, especially when your business is just starting to grow. Still, as it grows and spreads across channels, manual tracking creates the opportunity for human error in your inventory planning and replenishment process. Whether it’s an errant formula or someone who made a mistake in your spreadsheet, many people struggle to run calculations across multiple disparate spreadsheets. Missing just one spreadsheet, formula, or cell when running your calculations can result in overstock or stockouts. 

In short: Managing data by hand in disparate systems is a recipe for inevitably inaccurate data and inventory challenges. 

 

2. Visibility Challenges 

Another challenge we’ve seen retailers struggle with is related to supply chain visibility. Supply chains can be notoriously opaque. With so many moving parts, channels, and parties, gaining access to the information you need when you need it can be complex. 

If your business struggles with visibility challenges among departments or parts of your supply chain, you may run into:

  • Overstock: Multiple areas may unknowingly replenish the same product simultaneously. Alternatively, you may order too much of a product that isn’t selling well if you don’t have visibility into the sales data you need. 

  • Stockout: If one channel or location is unaware of a surge in sales in another channel or location, you may order too little product, resulting in a stockout. Additionally, if you don’t have adequate visibility into what marketing is promoting, you may not stock enough of the promoted product ahead of time. 

A related challenge here is a lack of visibility related to your warehousing processes. If your process relies on inaccurate, incomplete, or difficult-to-read tracking information, you may have issues related to product storage. 

For example, if a product is already adequately stocked in your warehouse but is challenging to locate, you may inadvertently overstock this product during replenishment. 

 

3. Inefficient Warehouse Space Management 

Warehouse space can be a significant cost for your business. If you aren’t using that space efficiently, it can significantly drain your bottom line. 

One of the most common ways businesses use warehouse space inefficiently is by overstocking products or holding onto too much safety stock. When you overstock or overcompensate for inefficient demand planning with too much safety stock, you pay for warehouse space you don’t truly need.

You can reduce the capital you need for warehousing costs and increase your margins by optimizing inventory processes to a greater extent, and only stocking the products you need when you need them. 

 

4. Communication Breakdown 

Communication breakdowns can spell trouble in most areas of your business. Inventory optimization is no different.

Regardless of how small or large your business may be, you need a central inventory planning and tracking system in place. Without this system, you will have trouble identifying the inventory you currently have in stock, let alone forecasting the inventory you need in the future.

Suppose your departments, locations, or sales channels are not all consistently and continuously sharing sales and inventory information. In that case, it can hinder your ability to plan for future demand and optimize your inventory correctly. 

 

5. Selecting the Wrong Software 

Are you still tracking and planning your inventory manually? If so, you’re not alone. However, manual inventory processes are challenging—if not impossible—to scale without software. 

To optimize your inventory processes, you need a solid forecast, real-time sales data, information on promotions, tracking data for in-stock and in-transit items, lead times, and more. And you need to manage all of that for every single SKU! If you just broke into a sweat thinking about handling that manually, don’t worry; there’s a solution. The solution is implementing the right inventory planning software solution. 

You may feel like any software is better than nothing… but selecting the wrong software comes with a host of new challenges. The most significant struggle is that the wrong solution can make it difficult to trust the data from your software solution, resulting in manual work at best and inaccurate forecasting at worst. 

To counter this struggle, research inventory optimization software solutions and ensure you are selecting the best solution for your business. Read online reviews and testimonials from real customers to ensure the software offers the features and functionality you need. 

You may also want to explore an inventory planning solution like Flieber, which offers a free software demo. This demo enables you to see the software in action, giving you a better idea of what it can truly do for your business. 

 

Managing Inventory Optimization with Ease 

Inventory optimization is a must for your business if you are selling across multiple channels. Direct-to-consumer brands must be sure that they can reliably offer a fantastic customer experience. A big part of that starts with having the right products in the right warehouse at the right time. 

You’ll want to implement a robust and easy-to-use inventory optimization solution to avoid the challenges discussed in this post. 

Flieber’s solution offers advanced demand planning, real-time adjustments in case of emergency, and timely replenishment recommendations. Using our solution, you’ll always be able to meet demand, keeping your customers happy and your bottom line healthy.

Schedule a demo today to see how Flieber can help you manage your inventory optimization processes! 

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