The five perils of excess inventory
Jim Huckle
Highly experienced, results driven global Logistics and Supply Chain Director immediately available for either interim or permanent roles. Delivers service level improvements coupled to efficiency driven cost reductions
During the Covid crisis many e-commerce businesses enjoyed unprecedented levels of activity as consumers switched their allegiance from high street retail to online shopping. Consequently and in support of the increased activity, inventory levels were adjusted accordingly. A secondary factor driving the increase has come from the turbulence in supply chains ex Asia. Many businesses took on additional stock due to the uncertainty of supply coupled with the increasing cost of shipping.
As we exit lockdown many businesses will now be re-assessing inventory levels, cognisant of the fact that consumers may return to high street shopping, balanced against the continuing supply chain issues ex Asia.
One simple and perhaps understandable option is to maintain the inflated levels of stock. Some businesses will choose this path, if only because it does not require a major change in strategy. However, this ignores some fundamental reasons why tight inventory control is essential to all organisations, particularly in terms of their financial well- being. Listed below are five reasons why any organisation should pay attention to stock levels.
Process efficiency
Excess stock levels mask inefficient processes, particularly within a distribution environment. A simple example is stock integrity. Excess stock will not expose process failures causing poor accuracy.
Obsolescence
Excess inventory will invariably become obsolete necessitating a reduction in selling price, in turn impacting margin and profit.
Warehouse space
Storage capacity is impacted by excess stock, potentially resulting in either additional unbudgeted space requirements or at best a reduction in operating efficiency, in turn driving higher costs.
Supplier performance
Excess stock levels conceal poor supplier performance. Conversely businesses operating a lean inventory model will drive reliable vendor performance.
Labour cost and efficiency
Excess inventory will drive labour inefficiency and hence higher costs.
In summary, five very good reasons why any business should avoid holding excess inventory. Please let me know if I have missed any or indeed if you disagree with my analysis.