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What Are The Challenges Of Good Inventory Management?

Stock Technical Analysis In Australia are working on the improvement of stock trading.

Limit Stockouts

A process for optimizing inventory management  consists first of all in avoiding, as much as possible, the phenomenon of shortage. Indeed, an empty stock no longer allows us to respond to orders placed. What often follows is a more or less significant shortfall and sometimes the temporary or permanent loss of customers . In general, a stock shortage can have different causes:

A sudden increase in the number of orders that existing inventory cannot handle.

Suppliers who are not very responsive or themselves faced with supply difficulties.

Poor internal management : slow procedures, misinterpretation of figures, omissions, etc.


External factors such as fire, flood, theft…

However, there are two types of stock shortage:

Temporary breaks , where the company can no longer meet demand for a longer or shorter period.

Definitive shortages, when the company deliberately chooses not to restock certain products.

Avoid overstocking

In their constant quest for supplies, some companies end up accumulating too much inventory . This phenomenon, far from being trivial, can have various impacts, all negative:

Storage costs are rising and reaching levels well above those acceptable to a business. If demand drops at that precise moment or if the market stalls, the company finds itself with a large stock of unsold goods.

To sell it, it is sometimes necessary to sell them off and therefore sell at a loss .

Commodity trading assumes that the money spent on placing the orders can be quickly recouped, supplemented by a trade margin, after the orders are sold. Excess quantities also had to be paid. Stored for long periods, they represent an overflow of fixed assets which unbalances the working capital requirement of the company and affects the performance of the structure .

Some goods are subject to gradual deterioration or a Best Before Date (BBD). Thus, if fresh foods are stored too long, they become unfit for consumption, and the company finds itself unable to sell them, including at a loss.

Satisfy Customers

The primary objective of a company is first to satisfy its customers in order to build loyalty . In the event of a shortage of stock (impossibility of meeting demand and/or honoring existing orders) or a surplus of stocks (increased risk of errors during preparation), dissatisfied customers can quickly make the decision to find another supplier. This obviously represents a loss of turnover and therefore of commercial margin , but also has an impact on the reputation of the structure. Dissatisfied or disappointed customers are likely to make bad publicity with their colleagues and the company concerned by this “bad press” inevitably loses its attractiveness…

Streamline storage space

Finally, inventory management consists in allocating a surface dedicated to storage adapted to the supply strategy used. The interior layout is also a key point: is the storage suitable for the products stored? Does the organization of the space favor the good circulation of personnel? Are loading/unloading bays easily accessible? Storage space is an important expense item that should be rationalized.

How to calculate the cost of a stock?

Owning a stock inevitably entails costs. To calculate its total amount, we distinguish 3 main types of costs:

Acquisition Costs

It all starts with placing one or more orders of varying amounts, then the administrative costs associated with placing this order. Then come the logistical costs : delivery, unloading of the goods, inspection, etc.

Acquisition costs

Once the products have been purchased, other costs must be taken into account:

Expenses related to storage space : payment of rent or reimbursement of monthly installments if a loan has been taken out, property tax, insurance, lighting, air conditioning, maintenance or even heating.

Staff costs dealing directly or indirectly with the company’s stock (handlers, management controllers, etc.)

Expenses related to the exploitation of stocks   (storage and handling equipment, ERP or WMS type software, RFID systems, etc.)

Indirect and non-systematic costs related to the depreciation and progressive obsolescence of certain goods.


Read More: Stock Market Classes Online


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