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The Impact of Poor Inventory Management in Process Manufacturing

Poor inventory management can cost process manufacturing businesses significantly not just in terms of time, and money, but can also turn out to be the difference between their success and failure, leaving them with decreased profit margins, and increased overhead expenses. But an inventory management software can emerge as a savior for them.

Table of Contents:

  • Overview
  • Poor inventory management- a perfect recipe for disaster
  • The impact it can have on a process manufacturing business
  • Factors that lead to poor inventory management
  • Inventory Management Software- solution to poor inventory management
  • Conclusion

Overview

Imagine walking into a KFC outlet to have your favorite chicken nuggets or burger, and being told that they are on backorder and the earliest you can have them is in a month and a half! You are most likely to walk out without having anything else, and might even consider visiting a McDonald’s or a Wendy’s or a Burger King outlet immediately. ALSO READ: How Inventory Management Software Helps Food and Beverage Industry?

Looks like an isolated case with no major repercussions? Think again.

KFC didn’t just lose out on an individual sale here, but also possibly on a customer’s trust, which would most likely affect the future sales too. This is because you may never place your trust in the same brand, to deliver what they promise with consistency, again. This, and much more, is what poor inventory management can do for businesses! ALSO READ: Need of a Pharmaceutical Inventory Management Manufacturing Software

Poor inventory management- a perfect recipe for disaster

It is no mystery why poor inventory management is one of the top reasons a process manufacturing, or any other manufacturing, business fails. Without having proper knowledge about the on-hand inventory, and its storage location, manufacturers can never control or manage their inventory in the most efficient manner. And without doing that, they can never meet the customer orders on time.

Maintaining adequate levels of inventory is paramount for process manufacturers. But it is pretty much like attempting to score a goal while targeting a shifting goalpost. They are often caught between balancing having either too little, or too much stock at their disposal, with fluctuating demand for different products due to a combination of various reasons.

And as a result, the manufacturers fail to fulfill an order as the ordered item is out of stock. They don’t just lose the customer, but the brand reputation also takes a hit, because in this age of social media, even an isolated case can snowball into a big problem, and spread like bush fire. After all, being a business that runs out of stock frequently or even occasionally is the last thing an organization would want to be known for.

Importance of Inventory Management

The impact it can have on a process manufacturing business

Poor inventory management can cost process manufacturing businesses significantly not just in terms of time, and money, but can also turn out to be the difference between success and failure, leaving them with decreased profit margins, and increased overhead expenses. In the past, bad inventory management has led to many process manufacturers closing their doors, and left others struggling on multiple fronts.

Given how disruptive it can be, having a good look at the impact poor inventory management can have on a process manufacturing business isn’t a bad idea at all.

  • Leads to missed sales – With poor inventory management practices, process manufacturersrun the risk of failing to fulfill an order due to stock-out of the ordered item. The businesses lack understanding of customer demand, sales forecast, supply chain lead times, etc., and consequently fail to maintain adequate stock levels, which results in understocking, and hence, the aforementioned situation.
  • Makes lose customers – The missed sales opportunity may push the customer elsewhere, and may even cause damage to reputation, as mentioned above.And once a customer finds another vendor who meets his expectations and offers a competitive price, he’s unlikely to return back. Having a stock-out and losing a customer can have a long term impact on the business.
  • Ties up liquidity – Poor inventory management leads to a situation of overstocking as well, which creates further problems for the process manufacturers. The inventory that doesn’t move ties up money that could have been better used anywhere else, like for paying rent, wages, and even for business expansion.Excess inventory also brings in extra cost, as storing it in the warehouse also costs money. Besides, it uses up space that could be used for other faster-moving items. Moreover, process manufacturing business’ inventory often has a limited shelf life because of material degradation or spoilage. If the inventory exceeds its shelf life, the manufacturers lose the tied up money.
  • Causes inefficiencies – Poor inventory management not only results in understocking or overstocking, but also causes inefficiencies. With the businesses not having accurate real-time information on their stock levels, there’s a possibility of inaccurate demand planning, errors in reordering inventory, and locating the exact location of the inventory in the warehouse, etc.

Factors that lead to poor inventory management

If done properly, inventory management tracks supply stocks, and helps predict the right quantity to order on supplies for the next cycle. However, most process manufacturing businesses still rely on managing their inventory manually, or use different disparate software systems to manage it, instead of using an inventory management software.

Impact of Poor Inventory Management

This limits the potential of the process manufacturers, as they fail to track their inventory in real time, and thus lack visibility into their stock. It also increases their time spent on spreadsheets, which further increases the vulnerability to errors with inaccurate data. Furthermore, it stops the manufacturers from conducting effective demand planning.

At last, not having proper inventory planning and management tools makes it impossible for process manufacturers to manage perishable inventory, as it requires measures like proper care, storage, and inventory control. Using manual methods can’t help avoid problems like spoilage, and waste.

Inventory Management Software- solution to poor inventory management

A good ERP software with inventory management ERP module allows process manufacturing companies to have a superior hold over their inventory, and to control material wastage and monitor inventory levels. Through it, the manufacturers can easily ensure the required material for production, set inventory targets, monitor the usage, create replenishment alerts, reconcile the balances, and do a lot more.

Acting as a centralized system for receiving orders to fulfilling orders to tracking inventory in real-time, the inventory management system also generates inventory status reports in no time, offering convenient and automated inventory updates that can make management tasks simpler for the process manufacturers. The benefits an inventory management ERP module offers include:

  • Makes tracking inventory in real time possible
  • Allows accurate and up-to-date forecasting
  • Makes managing the perishable raw materials, intermediates, and finished goods easier
  • Reduces the inventory/material wastage
  • Minimizes the investment in inventory

Conclusion

Poor inventory management can eat away at a process manufacturing organization’s profits while driving up operational costs. Such businesses need an efficient tool at their disposal to deal with the challenges related to inventory management, and to automate and streamline the inventory management processes, so as to propel their business towards growth.

If yours is a process manufacturing business, consider implementing BatchMaster’s ERP software with dedicated inventory management ERP module, which acts as an inventory management system, and allows you to manage your inventory efficiently and effectively. Get in touch with our solution experts to schedule a free demo, or a no-obligation discussion.

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Author

Sanjay Panjwani

Sanjay Panjwani is the Managing Director at BatchMaster Software, the leading provider of enterprise software solutions for process manufacturing industries. He’s on a mission to solve business challenges through innovation in ERP solution suites. You can connect with him on LinkedIn.

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