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Invisible Inventory: Is the “Unknown” Killing Your Business?

by Simon Eskow
invisible-inventory-is-the-unknown-killing-your-business
Lost, obsolete or overstocked inventory drives up costs and destroys margins. Without inventory visibility, you won’t know your business is suffering until it’s too late.

Any product-focused company that lacks inventory visibility is asking for trouble. Consider the money that goes into a company’s inventory. There’s the cost of purchasing products, of course, and there are the capital and operational expenses of making products if you’re a manufacturer. Finally, there’s the expense of warehousing stock until it’s sold. 

This all represents a significant investment that you can only hope to recoup when you sell your products. So you might go as far as saying that losing track of your inventory is the same as being reckless with your money. 

This is no exaggeration: A lot can happen to your inventory that will prevent you from recouping that investment if you don’t catch it in time. Inventory shrinkage is a big one, collectively costing US retailers billions of dollars every year in lost, damaged and obsolete products. Beyond that, without inventory visibility, you can miss things that contribute to a business slowly choking to death, like:

  • Understocked products
  • Low product sales
  • Inactive sales channels
  • Overstocked products 

These result in lost customers, decreasing revenue, increased warehouse and labor costs, and lost time correcting inaccurate inventory counts. All of this can be avoided if you understand the obstacles to visibility and the ways to get around it.

Get in the Know: What Is Inventory Visibility?

Visibility is having accurate and up-to-the-moment information about how many products you have to sell, where those products are located and what those products are costing you. True visibility extends from the time you purchase something (a finished good or the materials to make a finished good) to the time you sell those finished goods. True visibility lets you track all your inventory as products move through your supply chain, which includes:

  • Purchases
  • Components/materials and production jobs
  • Branch transfers and other stock movement

Stock Movement: Keeping Your Eye on the Ball

The common thread here is movement: products entering inventory at purchase, changing locations within a warehouse or between branches, and leaving inventory at the time of sale.

It isn’t enough to be able to say, “I have x number of y products,” because, over time, those products will move. Let’s pretend that you keep your inventory in a single warehouse, for example, and you only sell through Shopify. Over time, you can easily lose sight of your actual stock counts. If you were to move older products to another part of the warehouse to make space for new inventory, products could get lost in the shuffle. Your stock counts will become a nightmare, and you’ll end wasting hours and hours trying to reconcile what you think is in your inventory with what you’re finding in your warehouse. (Click here for a real-world example.)

The more products you sell and the more locations you keep inventory, the higher the risk of misplaced goods and wasted time trying to make everything align. Going back to the idea that inventory is a huge investment, trying to figure out what happened to your stock is almost like trying to remember where you buried your money after forgetting to draw a map. You’ll be left wondering how you even got to that point in the first place.

Why Do Companies Lack Inventory Visibility?

There are many possible reasons brands lose track of their stock. Generally speaking, though, a lack of visibility tends to come down to inadequate inventory management. To be more specific, the way they track inventory doesn’t automatically include purchases, sales and other activity that impacts the big picture; nor does it track information in real time, which means that the information they have about their inventory is neither complete nor up to date. Here are two common examples:

1. They use manually updated spreadsheets.
This is one of the biggest reasons for lack of visibility. Small companies that sell few products and have low sales can manage fine with spreadsheets. With even a little growth, however, spreadsheets can get out of date quickly, giving you a lack of visibility of what’s really in your inventory. Reported stock levels will not match reality, and a company may not realize it’s time to reorder and restock.

2. They manage sales channels and inventory separately.
If a company with a Shopify store adds Amazon Seller to their channel mix, for example, it will now have at least two places to track inventory, plus their spreadsheets or siloed inventory software they use as a “master.” The information in their master inventory will only be as accurate and up to date as the people who manually collate and update that data. If the information is even a little off, the company could end up selling customers a product that isn’t really available.

Inventory visibility cannot be an estimate of the products you think you have. It must be the actual inventory based on current sales (as seen in the two examples above) and any other activity that impacts real stock levels and locations, such as purchases, which increase inventory, and branch transfers, which move products to different locations. 

How to Achieve Inventory Visibility

True stock visibility requires the accurate recording of everything that happens to products in your inventory as it happens. This includes purchases, sales, stock transfers, returns and any workflow that changes inventory quantity, location and/or cost. To that end, visibility can only be achieved if all that data is integrated with, and tracked in, a central inventory master, including:

  • All purchases that increase your inventory of components and finished goods
  • Production jobs that lower component inventory and increase finished goods inventory
  • Sales orders, through any channel, that reduce your inventory
  • Dispatched orders that reduce stock on hand and change order status
  • Purchases and sales that adjust inventory at each stock location
  • Stocktakes that confirm or adjust inventory at each stock location
  • Stock transfers decreasing inventory in one location, increasing inventory in another

The key to visibility is to integrate all that data so that you can track products in real time as they move through your supply chain, affecting stock levels and inventory value along the way.

The Benefits of Inventory Visibility

Integrating that data allows a product-focused company to:

  • Reduce data entry and eliminate related errors
  • Eliminate the use of redundant software and portals
  • Increase order accuracy
  • Maintain optimal inventory levels/reduce overall storage costs
  • Fulfill orders faster and increase order transparency
  • Build customer satisfaction and drive future purchases
  • Increase forecast accuracy for improved inventory planning
  • Reduce losses due to obsolete inventory

The Shortest Path to Visibility

Companies that use spreadsheets, software or portals to manage orders, inventory and stock movements will have difficulty achieving visibility. Theoretically, you could attain visibility by cobbling together those portals and spreadsheets, provided you can afford the time and price tag of extensive, customized development and programming. This is one of the advantages of cloud-based inventory solutions: They are built to integrate, quickly and affordably, with other software and services. That integration allows data to flow between solutions freely and in real time, and the more ways it integrates vital inventory data, the higher and more comprehensive the visibility.

Click below to learn more about how Cin7 gives product companies complete, real-time inventory visibility.