7 common inventory management challenges and how to overcome them

Did you know that 75% of all businesses lose sales due to inadequate inventory control? 

Effective inventory management is your secret weapon in the ongoing battle of balancing stock levels, order fulfillment, and customer satisfaction. Nailing your approach may take some effort, but once you’ve got it down, victory will be yours!

Spoiler alert: You’ll need to face all of your inventory management challenges head-on. Some issues may be pesky little uprisings that are easy to quell. However, others may create a domino effect, leaving you scrambling to defend your ecommerce empire. 

So, what are the challenges of inventory management? We’re glad you asked! Here’s a comprehensive breakdown, along with a whole heap of savvy solutions to help you conquer each one and keep your ecommerce business thriving.

Challenge 1: Inaccurate inventory tracking

Can you believe that 48% of small businesses use outdated manual processes or simply don’t track their inventory at all? Mind. Blown.  

The problem 

Inventory tracking can be a bit like finding your way through a maze. Without a clear view of where you stand, you’re bound to hit some dead ends! Your primary inventory management challenges here will be avoiding discrepancies between actual stock and recorded inventory. 

The most common culprits are:

• Manual entry errors
• Outdated systems
• Lack of real-time data

The repercussions

When your inventory counts are off, you risk stockouts and overstock situations that disrupt operations and affect your bottom line. For example:

• When products are unavailable, customers will turn to your competitors instead.
• Excess stock ties up valuable capital and increases carrying costs.
• Without accurate data, future sales predictions become unreliable, complicating inventory planning.

The solution

Here are a few top tips for eliminating your inventory tracking woes:

• Conduct regular audits to catch discrepancies early so you can investigate and resolve any issues. 
• Invest in real-time inventory tracking software that updates your stock levels instantly as sales occur.
• Utilize RFID and barcode technology to minimize human errors and automate counting processes.

Learn more about inventory tracking for ecommerce.

The benefits

Who wouldn’t want to wave goodbye to spreadsheets and hello to automated efficiency? Take Blue Moon Appliance as an example. By improving real-time visibility with SkuVault Core, the company was able to eliminate manual errors, avoid overselling on eBay, and develop the confidence to sell on new channels. 

Read the full case study here.

Challenge 2: Overstocking and understocking

Here’s a reality check for you: Fixing understocking and overstocking issues can reduce your inventory costs by 10%.

The problem 

Overstocking and understocking are like two sides of the same coin. Too much inventory clutters your warehouse and drains your budget. On the flip side, you’ll lose sales and revenue if you run out of a popular item. 

The most common stocking slip ups occur due to:

• Insufficient sales trend insights
• Failure to account for seasonal fluctuations
• Not responding quickly enough to changing consumer demands.

The repercussions

When your inventory levels are off balance, it can create a domino effect that wreaks havoc on your business. For instance:

• Overstocking can result in markdowns that slash your profit margins.
• Overstocking perishable items results in spoilage.
• Missed sales opportunities caused by understocking equate to a decreased market share. 

The solution

Again, technology and automation are your best friends here. We recommend:

• Implementing Just-in-Time (JIT) inventory management to minimize excess stock.
• Setting optimal reorder points based on sales data and seasonality.
• Utilizing analytics to gain real-time insights into stock levels and trends.

The benefits

In short, the primary benefits are growth, confidence, and complete peace of mind for your entire team. But you needn’t take our word for it. Here’s what Richard Goss, Commercial Director and Co-Founder at Rinkit, had to say about investing in Linnworks solutions to help prevent understocking and overselling.

“Before, we were overselling and the way we were operating was too slow to grow the business. Now we’re exploring new countries and new channels all of the time. And we do that with confidence knowing we can cope with the orders coming in. There’s a real buzz around progress and new and clever ways of doing things.”

Challenge 3: Poor demand forecasting

AI-powered demand forecasting can reduce inventory forecasting errors by up to 50%. So, it’s time to stop laboring over that Excel sheet!

The problem 

When you misjudge how much stock you need, the inventory management challenges related to overstocking or understocking are exacerbated. Most demand planning faux pas are caused by:

• Limited access to historical sales data
• Failure to consider evolving market trends
• Ignoring external economic factors that cause spikes or dips in demand

The repercussions

When your forecasts are off, you might find yourself scrambling to keep up, and the fallout can be significant:

• Inaccurate forecasts disrupt supply chain efficiency, leading to delays and increased costs as you rush to fill orders.
• When orders are missed or delayed, you’ll lose loyal customers—and the referral power they take with them.
• Frequent order changes and cancellations can frustrate suppliers, affecting your negotiation power.

The solution

To tighten up your forecasting game, consider these winning strategies:

• Leverage historical sales reports to identify the patterns most likely to shape your future needs.
• Utilize advanced stock forecasting tools that analyze and pivot complex data sets to provide more granular insights into fluctuations.
• Regularly review and adjust your forecasts based on current market conditions and customer behavior.

The benefits

Imagine the confidence that comes with knowing exactly what your customers want, right when they want it! By honing your forecasting skills, you’ll boost your bottom line and simultaneously enhance customer satisfaction.

However, a word to the wise about reporting and insights: Don’t get too caught up on 2D reporting. The best data-driven decisions derive from tools that provide actionable insights in a more manageable form.  

Challenge 4: Managing multiple sales channels

Retailers selling on multiple platforms earn over 190% more revenue.  Now, that’s a powerful incentive to get your channels in sync!

The problem

What are the challenges of inventory management for multichannel sellers? We can answer that in one word. Discrepancies! 

Managing inventory across multiple platforms is like trying to herd cats—chaotic and complicated! Discrepancies between what’s available on your website, ecommerce platforms, brick-and-mortar stores, and wholesale outlets are usually caused by:

• Using different software for each channel
• Delays in inventory updates across channels
• Not having a centralized view of which products are where

The repercussions

When you fail to manage your channels effectively, the fallout can be significant:

• Inconsistent data and poor visibility lead to overselling, lost sales, and dissatisfied customers.
• The time and resources you waste reconciling discrepancies eat away at your profits.
• Keeping important sales data in individual systems limits your overall business insights.

The solution

For successful multichannel sellers, it’s not so much a case of location, location, location. It’s more about learning to streamline, streamline, streamline! Here’s how to do it:

• Connect your online store, brick-and-mortar locations, and marketplaces on a single system to ensure optimum visibility.
• Implement centralized inventory management software that syncs stock across all platforms in real-time.
• Standardize processes for ordering, tracking, and fulfilling inventory to maintain consistency across channels.

The benefits

With a solid multi-channel strategy, you can keep your customers happy, improve brand loyalty, and reap the benefits of referrals and recommendations to keep your sales soaring! Linnworks has many happy clients who’ve learned this firsthand. Let’s take a look at Direct Plants as an example. 

Direct Plants struggled with manual processes that hindered their multichannel sales efforts, leading to overselling and inefficiencies. By automating inventory and order management, they achieved real-time stock updates across all platforms, including their eCommerce site. The results? Enhanced multichannel selling capabilities, significant sales growth, and improved customer satisfaction.

Read the full case study here.

Challenge 5: Inventory shrinkage

The average shrinkage rate is 1.6% per year. That might not seem like much, but it could be costing you hundreds of thousands of dollars over time. 

The problem

Poof! It’s like your inventory is here one minute and gone the next. But precisely how do products go missing? It’s a sneaky problem that can quietly erode your profits. Here’s why it happens:

• Employees or customers taking items without paying
• Accidental breakage during transportation, handling, and storage
• Inaccurate record-keeping

The repercussions

If inventory shrinkage becomes a regular issue, the repercussions can be serious:

• The cost of missing items can quickly add up, impacting your overall profitability.
• More time spent on inventory audits and reconciliation means less time for other critical tasks.
• Increased incidents of theft or loss can result in higher insurance premiums.

The solution

Wondering how to stop the disappearing act? Here’s a few ways you can tighten up on inventory security:

• Use surveillance cameras and software with advanced access controls to deter theft.
• Utilize inventory management software with RFID and barcode scanning tools to pinpoint the location of stock at all times.
• Conduct regular cycle counts and audits to catch issues early and allow for timely corrective action.

The benefits

By addressing shrinkage head-on, you’ll protect your bottom line and foster a more efficient operational environment, instilling confidence among your team and customers alike.

Not sure what cycle counting is or how to get started? Here’s a quick 101 guide. 

Challenge 6: Inefficient warehouse management

Research shows that 74% of businesses have experienced shipment delays and much longer lead times due to inventory management challenges in their warehouses. Let’s help make sure your business is one of the other 26%. 

The problem

Managing a warehouse can feel like a game of Tetris. Every block must fit perfectly. Otherwise, you’ll face numerous picking and packing errors and order fulfillment delays. Most inventory management challenges in warehouses stem from:

• Poor layout and ineffective use of space
• Insufficient staff training.
• Outdated manual processes that are prone to error

The repercussions

When your warehouse isn’t running smoothly, the knock-on effect can lead to all kinds of headaches:  

• More time spent searching for items means higher operational expenses and labor costs.
• Order fulfillment delays lead to strained relationships with shipping carriers.
• Longer delivery times cause customer dissatisfaction, resulting in poor reviews.

The solution

Want a warehouse that’s shipshape and runs like a well-oiled machine? Here are the steps to follow:

• Implement a warehouse management system (WMS) to optimize storage and retrieval processes.
• Adopt lean warehouse practices to streamline operations and reduce waste.
• Provide comprehensive staff training on efficient inventory handling and best practices.

The benefits

Dealing with inventory management challenges related to warehouse operations boosts efficiency and accuracy, leading to faster order fulfillment and a long line of happy customers eager to make more purchases. As some of our clients will happily tell you, WMS systems are a complete game-changer. 

“Linnworks warehouse management has been fantastic, and I haven’t looked back since. It’s been a real upgrade. Now the jobs that we’d employ someone to do for a whole day are automated with Linnworks, saving us time and overheads.”

Arthur Martin, CoFounder of Buy Wholefoods Online

Challenge 7: Dealing with obsolete inventory

Did you know that obsolete inventory accounts for about 20% to 30% of a company’s stock? That’s a staggering amount of capital to leave sitting on a shelf!

The problem

Any capital tied up in unsold products represents money that could be better reinvested elsewhere. Yet, this happens all too often when:

• Products that were once popular fall out of favor
• Overestimated demand leads to excess stock that doesn’t move
• Failure to clear out slow-moving items leaves you with outdated/spoiled stock

The repercussions

There are several reasons why having old stock lingering around collecting dust is bad for business. For example:

• Your carrying costs are increased.
• Keeping obsolete items requires space that could be used for faster-moving products.
• Having money locked up in unsellable inventory hinders your ability to invest in new products.

The solution

Here’s how to avoid a situation where you’ve got multiple ‘ghost items’ gathering dust at the back of your warehouse:

• Implement inventory optimization strategies to prevent over-purchasing and keep stock levels lean. 
• Schedule regular inventory assessments to identify slow-moving items so you can take action before they mount up.
• Offer promotions or discounts to clear out old stock and make room for new inventory.

The benefits

The primary benefit is achieving a much healthier cash flow for further business development. However, having more space for new inventory also has its perks—like expanding into new markets or simply having the capacity to jump on board the latest trend. 

Need help shifting the excess baggage? Check out our guide on how to sell excess inventory while still making a profit.

Solve your inventory management challenges with Linnworks

As you can see, overcoming your various inventory management challenges is imperative for survival and growth.

But fear not! Whether you’re grappling with inaccurate inventory tracking, overstocking dilemmas, poor demand forecasting, or the chaos of multichannel selling, Linnworks and SkuVault Core can help. We have all the tools you need to streamline your operations, maximize efficiency, and boost your bottom line.

Book a demo today to learn more and see how we can help! 

FAQs

Here’s a quick roundup along with some of our most frequently asked questions to help you navigate the complexities of inventory management with ease.

What are the symptoms of poor inventory management? 

Some of the biggest tell-tale signs of mismanagement include frequent stockouts, excess stock, a mounting pile of obsolete stock, discrepancies between recorded stock levels and actual inventory, and order fulfillment delays.

What are the biggest inventory management challenges? 

In our experience, the top three are: 

• Predicting customer demand accurately enough to avoid overstocking and understocking
• Tracking inventory accurately.
• Removing errors in stock counts due to manual processes or outdated systems.

How to solve poor inventory management? 

Invest in innovative, industry-leading software solutions like Linnworks and SkuVault, which help you streamline and automate so you can work smarter rather than harder. 

What are the stages of the inventory management process? 

There will be some variations based on your business type and size. However, generally speaking, the core stages of inventory management typically include planning, ordering, receiving, storing, tracking, and reviewing. The best inventory management solutions can help at every stage.