Inventory management is crucial for a product-based business and can make or break it. A single error can result in stockouts and overstock, leading to lost selling opportunities or wastage.
Retailers have lost $818 billion to inventory distortion, 52% from stockouts and 44% from overstocks.
This blog explores the ground-level challenges businesses face, which makes implementing the Odoo inventory system essential.
Challenges faced by businesses without the Odoo inventory system
Manually or using independent systems to manage inventory can lead to various limitations that prevent you from effectively managing stocks. It can lead to many operational inconsistencies that can result in losing inventory. The major challenges businesses face without the Odoo inventory system are:
Balancing stock levels
Balancing demand and supply is one of the major challenges businesses face. Having excessive or insufficient stock can lead to overstocking and stockouts.
Stockouts can lead to missed revenue, backorders, and overselling. Overstocking can result in locking up capital, spoilage, and wastage due to continuously changing trends. Both can contribute to losing finances and customer trust.
These issues arise when your inventory data is inaccurate and you have limited demand visibility. Many businesses rely on fragmented or independent systems, spreadsheets, and inconsistent tracking methods, which are ineffective in keeping pace with real-time demand fluctuations.
Cross-docking strategies can help you address demand-supply balancing issues. Cross-docking is a logistics strategy where the goods are directly transferred from an incoming vehicle to an outgoing vehicle with minimum or no storage time in between. Implementing this strategy can assist in smoother inventory flow and better planning.
Accurate forecasts
Forecasting future demands is more than mere guesswork. You can not just guess what customers want. The challenge is that the demand is evolving, and coping with it is difficult. Other factors, such as promotions, supply chain disruptions, seasonality, and shifting customer preferences, make calculating demand accurately challenging.
Along with historical sales data, you need to consider other real-world variables while forecasting demands. Otherwise, you might stock out of the appropriate products or overstock your shelves with the incorrect ones.
Lack of real-time tracking
Relying on manual or fragmented inventory management includes maintaining disparate spreadsheets (by different departments) and manual data entry. This data is rarely synchronized instantly, making updating product sold, moved, or received data impossible in real-time.
Moreover, manual data entry can lead to inaccurate stock levels, which may result in selling stock you donāt have, canceling orders, and increasing customer dissatisfaction. On the contrary, excess stock in the warehouse sits idle and can become obsolete, taking valuable space and incurring holding costs.
The unavailability of an immediate and accurate view can slow down picking and packing processes. This can result in holding the order while the stock is located or verified, or even while waiting for a supplier.
Without precise information about in-hand inventory, you might order more products or fail to order products running low, leading to overstocking and stockouts. Manual operations include searching for products, reconciling discrepancies, and verifying stocks. They are inefficient, making it difficult for employees to focus on more productive work.
Limited visibility
Visibility is more than real-time tracking. Limited tracking is the inability to gain an advanced and detailed view of inventory across the entire supply chain. Having a comprehensive view of inventory includes:
- Knowing what stock is in the warehouse
- Stock in transit
- Inventory in distribution centers and logistics providers
Businesses with multiple warehouses struggle with stockouts in one location while another has an oversupply of the same product. This makes internal transfers to meet demand difficult, leading to lost sales or unnecessary purchases.
Limited visibility can lead to ineffective demand planning. To forecast future demand, you need to understand past sales trends and current inventory levels across all channels.
Addressing challenges on time is challenging with precise information about incoming shipments, supplier delays, or production disruptions. This can lead to reactive and costly measures.
Making strategic decisions about expanding product lines, opening new warehouses, or optimizing logistics is difficult without a clear, consolidated picture of inventory flow and distribution.
Supply chain disruptions
The supply chain is complex and global, which makes it prone to various disruptions, including natural disasters, geopolitical events, supplier issues, shipping delays, or sudden surges in demand. Manually operated businesses lack tools to anticipate, identify, and mitigate the impact of these disruptions.
The delay from your primary supplier can deplete safety stock easily if you donāt have a system that can alert you, flag the issue, and suggest alternative sourcing. Manual operations make rerouting challenging in the case of a blocked shipping lane. This can lead to frequent stockouts and delayed deliveries due to ineffective supply chain management, damaging the companyās reputation and customer loyalty.
Stock loss & obsolescence
This challenge comprises two major issues: stock loss and obsolescence. Stock loss refers to inventory loss due to theft, damage, misplacement within the warehouse, or administrative errors (inaccurate data entry). On the other hand, obsolescence refers to products becoming outdated, expired, damaged beyond repair, or simply no longer in demand, making them unsellable.
Loss or obsolescence can wipe out your finances, incurring purchasing, manufacturing, and storing costs. High stock loss rates and obsolescence can eat into your profit margins, making your business less competitive.
Damaged stock can take up warehouse space that can be used for sellable items, leading to increased storage costs or the need for larger facilities. These products need to be removed, incurring additional costs and environmental concerns. The inability to track can lead to lost stock or obsolescence, hindering efforts to address the issue and hold accountability.
SKU surge
A SKU, or Stock Keeping Unit, surges when a business expands its product catalog, offering a wide range of sizes, colors, models, or even an entirely new product line. While growing the product is a positive aspect, managing vast product types is a monumental task.
Manually tracking hundreds or thousands of SKUs with their unique characteristics, storage requirements, and demand patterns. This can soon become overwhelming and error-prone. Without a centralized database, there are chances of creating duplicate SKUs, incorrect product descriptions, or miscategorization, leading to confusion and inventory discrepancies.
Using historical data effectively is difficult without advanced analytical tools when there are so many SKUs. Increasing SKUs can disorganize the warehouse, making it hard to locate items, optimize storage space, and manage picking routes effectively. More SKUs mean more data entry, order processing, and reconciliation efforts, significantly increasing the administrative workload.
Managing costs
Inventory management also includes managing costs associated with the stock. These can include:
- Carrying costs – Expenses related to holding or storing inventory.
- Ordering costs – Expenses associated with placing and receiving orders
- Stockout costs – The financial impact of not having an item in stock when a customer needs it. This can lead to lost sales, expedited shipping, customer dissatisfaction, and reputational damage.
Unoptimized inventory can often lead to holding too much stock or slow-moving items. This can result in unnecessarily high storage, insurance, and financial costs. Also, if the ordering is unoptimized, small, frequent orders can lead to higher per-unit ordering costs and inefficient freight.
The inability to fulfill customer demand directly increases costs, leading to immediate lost sales and potential long-term customer relationship damage. The businesses may find it difficult to establish competitive and profitable pricing if inventory cost data is inaccurate. Ineffective inventory management leads to larger amounts of capital tied up due to slow-moving or obsolete stocks.
Seasonal demand variations
Many industries, like retail during festivals, experience significant demand fluctuation due to seasonal changes, holidays, or events. Most businesses rely on their intuitions or minimal historical data, leading to overstocking or stockouts.
Accumulating excessive inventory during slower periods or off-peak times leads to higher carrying costs, potential obsolescence, and discounted sales to clear stocks. The inability to forecast accurate demand can result in unpreparedness for a demand surge, leading to stockouts, lost sales, frustrated customers, and potentially pushing customers to their competitors.
Inefficient raw material inventory can lead to production inconsistencies with idle capacity, followed by intense, rushed production to meet sudden demand, increasing labor costs, and quality issues. Tying large capital in seasonal inventory can create significant cash flow problems.
Compliance and regulations
Depending on the industry type, such as pharmaceuticals, food and beverage, electronics, or defense, companies are subjected to strict regulatory requirements regarding inventory management. This also includes traceability mandates (tracking product from raw material to consumer), batch management, serialization, and specific audit reporting requirements.
Inability to meet regulatory compliance can result in fines, legal actions, product recalls, and even business closure. Managing records and retrieving comprehensive inventory information without a system is challenging, which makes passing regulatory audits challenging.
In industries like food and pharma, poor inventory control can result in product expiration or contamination reaching consumers, posing health and safety risks. Maintaining industry certifications with stringent inventory control and documentation is challenging.
Manual documentations
This refers to relying on paper-based records, disparate spreadsheets, email threads, or verbal communication to manage inventory information. The data is entered, copied, and reconciled manually.
Manual data entry and transcription make human errors inevitable. These common errors include typos, incorrect qualities, misplaced documents, or overlooked updates. Manual documentation is incredibly labor-intensive, diverting valuable employee time from more strategic activities.
Manual documentation can lead to a lack of data integrity due to discrepancies between different manual records. This can make determining the right source of truth difficult, resulting in a lack of trust. Collecting data from manual sources for analysis or reporting is tedious and inaccurate, hindering effective decision-making.
Manually recorded information transfers are slow, leading to delays in order processing, stock updates, and decision-making. Tracing changes in inventory records is impossible, making accountability difficult. Paper records and files take up more physical storage space and are vulnerable to damage or loss.
Conclusion
A comprehensive inventory management system, such as Odoo ERP, is necessary to prevent reactive, dispersed, and ineffective business operations. These interconnected challenges impact profitability, operational efficiency, customer satisfaction, and overall business growth.
Master Software Solutions offers one-stop Odoo consulting services, including implementation, migration, module development, customization, website development, and support & maintenance. Our Odoo experts can help you implement a tailored Odoo ERP solution that aligns with your business. Contact us to discuss your business requirements and see how our team can help.