How to Avoid Inventory Problems With Your Business

Inventory waste and shortage issues can cause major problems for your business. How can you avoid over- or understocking your products? Try working out a better forecast, building to order, or using consignment inventory.

Create a Better Forecast

Creating a better forecast for demand of your product can help you cut down on waste and avoid shortages. The more precise and accurate your forecast, the lower your risk of overstocking and ending up with more inventory than you need. When you are able to achieve an optimal demand forecast, you will be able to minimize waste, maximize production efficiency, and streamline purchasing processes.

A good forecast takes into account both past data and current conditions. Incorporating all relevant data is essential if you want to come up with an accurate forecast and reduce your inventory waste. Calculate how much product you believe you will sell over a definite period of time, then use that number to figure out the amount of inventory you will require in order to fill future orders for customers. Use historic sales data, planned events or promotions, and any external forces to come up with your final amount.

Build to Order

If your demand is unpredictable, build to order reduces inventory waste and the need to predict demand. Instead of building to stock, manufacture your product upon receiving a customer’s order. That way, you don’t run the risk of overstocking. Customers may have to wait longer for their order, but you will greatly reduce your risk of both inventory waste and inefficiency.

With a build to order business model, you can incorporate many lean manufacturing tools in order to further reduce waste and shortage issues. For example, level loading can help your business decrease its overall lead-time between reception of an order and the delivery of the products, and mistake proofing can help you reduce errors in production. There are many types of waste that lean manufacturing effectively eliminates.

Use Consignment Inventory

Using consignment inventory is another way to avoid stock shortages while also staying away from overstocking your products. With consignment inventory, the supplier retains ownership of all stock until the customer has purchased it. You, the retailer, do not have to pay for inventory until you have sold it. This results in shifting the inventory carrying costs from your business to your manufacturer or supplier. If customer demand is uncertain, consignment inventory is a great avenue for reducing your financial risk.

You can avoid inventory problems with your business in many different ways. Improving your demand forecasting, building to order, and trying consignment inventory could help your business prevent both inventory excess and shortages.

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