You can never underestimate the significance of inventory control when operating a business. An accurate measurement of stock levels underpins the integrity of your customer service on a number of levels, and the flow-on effects are layered and multidimensional. Inventory control is largely responsible for stymying financial losses in your business, and when functioning optimally in accordance with forward-thinking business strategy drives profits exponentially.
It would be a fatal flaw for any commercial operator to ignore the predominant functions of inventory control as crucial pillars of successful business practice. Read on to understand the top 10 reasons why inventory control is so important for your business.
- Spending cash wisely
Buying only what you need is sometimes one of the most difficult things to manage when it comes to both ‘bricks and mortar’ businesses, and ecommerce operations. Therefore, it is integral to finetune your inventory so that it is not overstocked.
In terms of the hospitality/food industry: one of the biggest culprits for profit loss is through food wastage, alongside food cost considerations. In tackling food wastage, stock control allows you to assess the level of purchases versus the quantity of garbage. Inventory control guides you to make astute stock purchasing decisions, so you can free up cash flow for such things as marketing and expansion.
- Delivering on promises
High customer satisfaction directly influences customer loyalty, and this is one of the primary indicators in fostering sustainable profits. A customer shouldn’t ever be given incorrect information, for example: having the expectation of purchasing a product and finding out that it is, in fact, unavailable.
This translates to poor customer service by generating mistrust/lack of faith and a real sense of failed accountability. Stock inventory must be accurately and regularly assessed in order for you to be able to deliver on those fundamentally crucial promises that are largely responsible for maintaining customer retention.
- Reporting accurately
Inventory control is essential for auditing reasons. To make financial reporting possible you will need to ensure you run accurate stock processes. Since we are talking about the ‘bottom line’ here, it’s not a mistake any owner/operator/manager can afford to make.
- Motivating positive customer purchasing decisions
Keeping tabs on stock levels has a surprising added benefit, and this relates to motivating positive customer purchasing decisions. If you can accurately measure stock, you can know when you are is short supply of a particular item, and can communicate this promptly to your customer.
This is particularly valuable when applied to ecommerce sites. Scarcity drives impulse buying, ie. putting psychological pressure on a customer to act quickly to secure what they desire before it is no longer available.
- Capturing customer data
The benefits of communicating with your customers regarding available stock levels does not stop there. Once again, this is particular relevant to the online retail space (but, also applies to more traditional storefront environments). Ripe opportunities do exist for stock notifications to be used as a data gathering tools.
For example: a customer adding a temporarily unavailable item to a ‘wish list’, or leaving their contact information means they will receive a notification as soon as the item becomes available again. You now have the propensity to create a valuable database. This will allow you to nurture interest into the future, for example: sending promotional material via EDM (electronic direct marketing) to all viable entries in your list.
- Reducing shrinkage
Healthy turnover is a cornerstone of any successful business, so knowing where you are at with your supply of stock is absolutely essential. This allows you to reduce shrinkage by segregating damaged/faulty goods, items that are out of season/about to transpire and goods that aren’t selling well etc. Creating a sale or a special offer using these items/goods, for example: displaying perishables as ‘reduced to clear’, allows you to maximise turnover.
- Minimising theft
It’s not a pleasant thought to consider that your staff might be stealing from stock, but it is always necessary to employ vigilance. Also, if it’s clear that a tight inventory system exists, this scenario alone will go a long way to discourage theft. The central tenet of opportunistic behaviour that is ‘risk versus reward’ will weigh heavily in your business’s favour.
- Employing growth strategy
Any sound business plan will include an analysis of the trends and cycles gauged as a by-product of effective inventory management. After noticing spikes and troughs in your stock control, you will discover ways to streamline your processes to great advantage in the future.
By virtue of assiduously practicing inventory management, you will find yourself making constructive business decisions on an almost instinctual level. Inevitably, you will gain ‘the magic touch’ when it comes to all those finer considerations.
- Managing reputational risk
There are a range of issues that can arise from seemingly nowhere to impact your standing as a successful business. These are known as the determinants of reputational risk. Without regular and meticulous inventory control (functioning as a fine-tooth comb) these factors will assuredly escalate. This is especially true if you have stakeholders are are listed publicly on the stock exchange, but regardless of the size and scope of your business, reputation is always paramount.
- Increasing overall efficiency and reducing time wastage
Efficiency is everything when it comes to business. There is always a price associated with time wastage, referred to as opportunity cost. This equates to a ‘trade-off’ (in the opportunity for maximum potential being forfeited), for example: data-entry processes being conducted by a salesperson due to inadequate staffing and sales declining as a result.