Inventory Management Guide

Chapter 11. What Are Common Inventory Management Challenges?

Inventory management comes with various challenges, some easier to work around than others. This chapter looks at the most common and how to reduce the burden.

Welcome to Chapter 11 of our inventory management guide. In this chapter, we will go over the many challenges of inventory management and how to solve them.

Not every challenge has a ready-made solution. In fact, a number of the challenges we’ll cover are ones you’ll have to constantly work through.

Feeling a little overwhelmed? No problem. Head back to the inventory management guide homepage and freshen up on the previous chapters.

Top 20 Challenges of Inventory Management and How to Solve Them

You’ll notice throughout this chapter that several of the challenges listed have overlapping causes and solutions.

1. Limited Visibility on Warehouse Activity

The problem: When you have limited visibility on what goes on in your warehouse, all kinds of mistakes could be made, and you could miss out on areas for improving efficiency.

When you improve warehouse visibility, you may find certain inventory gets in the way, some space is not utilized enough, or staff have to make odd or difficult journeys to pick products.

When you see how space is being used, you can optimize it.

Additionally, on a more practical level, visibility of warehouse activity can help if inventory goes missing.

The solution: You can’t be on the warehouse floor 24/7, monitor every piece of inventory, and monitor every employee.

While cameras are a good start, they must be monitored and won’t necessarily help report and isolate areas for improvement.

What really helps is software to monitor how staff use the space. This can include using mobile devices to track how employees move around the warehouse. Based on this information, you can find ways to optimize the space.

Find out how Skustack Lens can help.

2. Overstocking

The problem: Overstocking can be a painful inventory management blunder that can cost you a lot of time and money. It can be the result of several other challenges in this article.

The problem with overstocking is that you end up with too much of a particular product that you can’t sell.

It usually happens when you have limited visibility on your sales data and how much inventory is leaving the shelves.

Of course, there are also times when it can’t be predicted. Something unexpected happens, and you end up with too much of an item whose demand has plummeted.

The solution: Forecasting tools can help reduce overstocking as they can help you order the amount of stock you will probably need for the coming weeks or months.

You can also look into software that offers predictive purchasing, where stock is automatically reordered based on your current levels.

However, you should still have a go-to process for overstocking, just in case it happens.

You should have partners to offload the stock—it will likely come at a loss, but that loss will be smaller than the amount you could have lost using up space with inventory no one wants when you could have stock people want to buy right now.

3. Obsolete Stock

The problem: Certain products will always have greater demand than others, and if you don’t keep an eye on slow-moving stock, it can soon become obsolete.

Obsolete stock is no longer desirable to customers, typically because it is no longer technologically useful or has just fallen out of fashion.

When this happens, you’re stuck with stock that can be extremely hard to move, taking up space that more desirable products could occupy.

The solution: First, you need to identify which stock in your warehouse is at risk of becoming obsolete. You can do this by tracking the ‘aging’ of your inventory, which informs you how long inventory has been sitting on your shelves.

When you notice that stock has been sitting around for longer than usual, it may be a sign that you should do something to prevent it from taking up space if it becomes obsolete.

Again, forecasting is beneficial. You can forecast to avoid overstocking, which is also a major help in staving off products becoming obsolete if they are left over. 

Generally, you need to know about the industry and keep an eye on how it changes. Forecasting won’t always help because it’s based on past data—demand could still be high right until a new version of a product suddenly comes out and no one wants the old version anymore.

When removing obsolete stock, you may need to sell it on for a loss or destroy it. Neither will likely be profitable, but often, it’s the only way to free up space for products that sell better and turn a profit.

4. Poor Communication Between Departments

The problem: When there are communication gaps, stock can go missing, things can get broken, orders can be delayed, and staff can get caught up in accidents and even conflicts.

It could be that communication is poor between different teams within your department (for example, you may have certain teams that work on certain inventory but also different staff in different warehouses).

On a bigger scale, communication could be poor throughout the company, and different departments (customer service, order fulfillment, etc.) could struggle to share information.

The solution: Before getting down to the technicalities, ensure you have trained your employees on how their tasks impact the employees of other departments so they can see the whole flow.

It would also be beneficial to get everyone on the same system, so they have visibility on how products are changing hands.

This way, when changes are made to inventory, you can see the history, who moved a product, or anything else vital to know. People can then follow up on issues and spend less time hunting down problems.

5. Poor Warehouse Management

The problem: Poor warehouse management could result from just not keeping on top of your inventory management tasks.

Or, you may not know what they are, recognize why some are important, or know which are more important than others. It may be the case that you were not properly trained on them.

Poor warehouse management causes a lot of problems. Some of the most obvious problems include:

  • Missing inventory.
  • Late deliveries.
  • Overstocking and understocking.
  • Caught off-guard by seasonality.
  • Spending too much on labor.

Furthermore, if the conditions at your warehouse are shockingly bad, you may also lose employees to poor working conditions.

The solution: The most obvious is to ensure you and your employees are properly trained. You should probably spend time brushing up on the best inventory management practices.

You should also be sure to properly delegate tasks. Too often, managers try to handle everything themselves. Meanwhile, they have staff perfectly capable of completing tasks themselves.

Again, this is likely the result of not using software to manage tasks—or if you are not using features to forecast and not observing reports and using them to inform your decisions.

Find out how Sellercloud can help with warehouse management.

6. No WMS

The problem: Operating a warehouse without a WMS can be related to the previous point (and maybe a direct result of)—poor warehouse management.

As we’ve made clear in previous chapters (and repeated in this chapter), without software in place, you have no idea what’s happening in the warehouse, and handling all the tasks is just not possible.

You might still not be using a WMS if your company is small and handles a puny amount of inventory.

Or you may be avoiding it because you’re not too technical or you’re not sure about the costs involved—but be rest assured that software is the only real option.

The solution: Source for a WMS that works for your needs and is practical to use. There are quite a few options that can range significantly in functionality.

Find out how Skustack can help.

7. Inaccurate Reports

The problem: Inaccurate reports can lead companies to misunderstand their business’s current inventory levels, product demand, and other areas they need to track.

Even slight inaccuracies can grow into big problems, and you may only realize the mistake later on, and it could be difficult to deal with.

More importantly, inaccurate reports can also result in companies investing in the wrong things and making costly financial errors.

The solution: If you’re aware that the currently generated reports are inaccurate, you must invest in software known to create accurate reports.

However, don’t rule out the possibility that you might not know how to read reports because you haven’t received proper training.

Additionally, it could be that you haven’t configured your reporting software correctly, as it’s too technical. Either get someone who can help you or get software that is easier to set up.

Find out how Sellercloud’s reporting features can help.

8. Poorly Organized Storage Areas

The problem: Poorly organized storage areas make it difficult for pickers to find products and increase the chance of accidents.

You may end up with poorly organized storage areas for several reasons:

  • You may have unconventional inventory that’s hard to work with (large, oddly shaped, or special requirements).
  • Related items might not be stored next to each other.
  • You may have multiple batches of the same product in different areas.
  • You haven’t considered the journey pickers take to collect products from shelves.
  • You don’t have clearly defined zones where certain inventory management processes should take place (e.g., returns, packaging).

The solution: A WMS with warehouse visualization features is the best way to solve these problems.

This helps because it gives you a top-down view of how your warehouse is being used, which you can use to reorganize and improve the workflow.

Check this blog post for more on how to design your warehouse layout.

9. Unaware How to Deal With Defective Products

The problem: You haven’t decided on an appropriate response to defective products and don’t have a process in place.

You may end up with a heap of products you’re unable to sell—that takes up an enormous amount of space that could be used for better selling products.

The solution: You need a specialist who understands the products and can determine the best course of action.

Most often, if you receive defective products from your supplier, the course of action should be to send them back.

Head back to Chapter 10 for more on what to do with returns

10. Unable to Forecast Demand

The problem: Being unable to forecast demand can throw your inventory off balance. Overstocking certain products while understocking others can disrupt the consistent flow your company needs.

It can throw your entire inventory off balance because you won’t have the right amount of space available, deeply impacting your business’s effectiveness.

An inability to properly forecast demand can result from inaccurate reporting or not using tools for forecasting in the first place.

The solution: Invest in the tech with forecasting features and learn how to use it. In the best-case scenario, the software should be able to automate demand forecasting.

On top of that, ensure you forecast demand regularly and watch sales data. Observe if there is a pattern, such as seasonality, days of the week, or other less obvious trends.

Find out how predictive purchasing can help.

11. Handling Kits

The problem: Kits are products made from a combination of products—each individual product has its own SKU, and when combined as a kit, they have a new SKU.

You can run into issues where a kit is sold, but one or more of the items required are unavailable, or if you accidentally send out a kit with an item or two missing or incorrect.

The solution: Train employees on kit components so they can easily identify them and spot mistakes if there are any.

You can also keep better track of the components required for a kit using software.

Software should allow you to set up rules on what is required for each kit, and when required components are unavailable, the kit is also considered unavailable.

12. Multiple Warehouses

The problem: Your inventory is spread across multiple warehouses. These warehouses may have specific purposes, such as different channels.

But what happens when inventory runs out in one warehouse, and you need to send it to the other?

The solution: Increase warehouse visibility. Again, software helps with this—you need to adopt a solution that can separate your inventory by warehouse and give you visibility on total inventory.

The software you use should enable you to adjust inventory levels in your warehouses when necessary to ensure they have enough stock.

13. Using the Wrong Software

The problem: You’re frustrated with the software you’re using, and it just doesn’t meet the standard you need.

It could be the gaps in its service, or it could be outdated and not useful for today’s market.

It can also be the case that it’s not customized for what you need it to do, or to get it to work how you need it to, you need a developer (that’s expensive).

The solution: Reanalyze your needs and look for a service that can fulfill them better. It should be software that can be customized to your needs and not leave you relying on multiple services for small tasks.

You may need to convince your superiors that something more advanced is needed, so come prepared to present your point of view.

Read how Sellercloud can help.

14. Unable to React to Changing Demand

The problem: Chaos ensues whenever there is a sharp change in demand for one or multiple products.

Either too much inventory is shooting out the warehouse door, or inventory is just sitting around getting dusty.

Inventory needs to be balanced, no matter what the situation. Fresh stock must constantly be coming in to fill empty spaces, and older stock shouldn’t be left abandoned.

The solution: Again, just like with forecasting, you need a strategy. This strategy must enable you to react to changes in demand, whether a sudden increase or decrease in demand.

You may need to quickly reduce certain items in your inventory with low demand to accommodate products with unexpectedly high demand.

On the other hand, if demand for certain products slumps, explore options such as kitting, which we mentioned earlier.

15. Poorly Defined and Inefficient Processes

The problem: Poorly defined and inefficient processes can result from a lack of experience and lead to many errors.

Inventory can end up all over the place, making it harder to find and increasing the time it takes to get the product out to the customer.

Poorly defined and inefficient processes can mean that inventory is more likely to go missing and get broken.

The solution: Set up proper processes and procedures. These should, of course, be based on your workload and how your warehouse works.

They may take time to figure out for your business and evolve over time. Again, proper training helps here, too.

16. Complex Stock

The problem: Your company handles perishable, fragile, or oversized stock. You could even include stock with certain requirements, such as temperature.

One of the biggest challenges of complex stock is that it can make regular tasks more time-consuming.

The solution: You must invest in ways to simplify storing complex stock. Put hard-to-move stock in areas where it won’t get in the way of other inventory—perhaps further out of the way from stock that leaves shelves fast. 

Ensure you give the stock enough space to maneuver to leave where it is stored.

It may be necessary to stop holding complex stock, especially if it is not making many sales and is just getting in the way.

17. Broken, Ruined, Missing, or Stolen Inventory

The problem: If inventory is destroyed, missing, or stolen, it can be a huge expense, and you can be accused of not doing your job properly.

Rest assured, these problems will always happen. You can’t always keep on top of all inventory, but there are things you can do to reduce ruined or missing inventory.

The solution: Each scenario needs a process to ensure it is handled properly. Issues should be investigated to prevent them from recurring and, in some cases, salvage what remains.

If inventory can’t be repaired and sold, the best you can do is take measures to prevent it from happening again.

To prevent stolen inventory, adopt more security measures to make it harder for theft to occur. You should also vet your employees better to ensure they are not stealing from the warehouse.

18. Handling Product Variations

The problem: Product variations are the different versions of a product. It could be simple things, such as color or size, or more complex things, such as features (for example, smartphones).

When a product has many confusing variations, the wrong products can get prepared for shipment, which can mean more returns and negative reviews.

Furthermore, stock counts could be incorrect if variations get confused.

The solution: Variations must be placed alongside each other and clearly marked on shelves. Furthermore, they should have different SKUs that pickers can scan and see the difference in the product.

Proper training also helps reduce the possibility of staff confusing product variations.

19. Not Learning From Mistakes

The problem: You’re aware of the problems you keep encountering at the warehouse but cannot move past and resolve them.

It may be the case that you don’t have time to address the problems or you don’t have the resources to deal with them.

The solution: You will only resolve these problems by confronting them head-on. You need to set realistic and achievable KPIs and focus on small but consistent improvements to prevent these mistakes from recurring.

Reporting can also help highlight problems that need to be addressed.

20. Neglecting Cycle Counts

The problem: We’ve mentioned cycle counts a few times throughout this inventory management guide, and it can be easy to miss their value.

Quick reminder—cycle counts are where you confirm that your physical stock is accurately reflected by the records you have in your software.

When inventory managers neglect cycle counts, it increases the likelihood of a discrepancy, and one day, you may find that a product that was just sold isn’t there.

The solution: The obvious solution is to start doing cycle counts—but that’s sometimes easier said than done.

Schedule dates for handling cycle counts for specific parts of your inventory, and devise a strategy that works well for your workload. You don’t need to count it all at once—that’s daunting when you have a large warehouse.

Reporting software also helps with this challenge.

Key Points From Chapter 11

You’ve now heard it all! There’s not a single challenge you’re not prepared for. Remember these key points.

  • Many of the top challenges have similar causes and solutions. Using the appropriate software often prevents many of these challenges from affecting inventory management.
  • Reporting and forecasting are vital to preventing various challenges or at least reducing them.
  • Proper training and protocol can also prevent many issues.
  • Some challenges will never be completely solved, and you must deal with them frequently.

You’ve just finished Chapter 11 of Sellercloud’s inventory management guide. The next chapter will cover the costs associated with inventory management.

Chapter 10. How Do You Handle Returned Inventory?
Chapter 12. What Are the Costs of Inventory Management?