By Jake Frimmer, ERS Business Analyst Intern

Having worked with ERS for the past six weeks, one of the most important things I have learned is the critical role of effective inventory management. This practice, when executed well, can significantly contribute to business success. It is important to note that being understocked and overstocked can have severe consequences.

Over and Under

Overstocking ties up capital that would be used for other business activities like marketing, R&D, or expansion. This excess inventory may cost more in storage or can become dead stock. It can also lead to a need for markdowns and promotions to clear excess stock, decreasing profit margins on these products. On the other hand, understocking leads to lost sales and unsatisfied customers. If a customer finds that the product they are looking for is unavailable, you will lose that sale and may even lose their loyalty. Also, understocking may cause you to incur additional costs to expedite shipping to replenish your stock quickly.

Leveraging Technology

Leveraging advanced tools like demand and inventory planning software can help a business achieve balance, ensuring that it has the right products in the right quantities at the right time. These tools can empower businesses to optimize inventory levels, better meet customer needs, reduce unnecessary spending, and ultimately increase profitability. Regularly reviewing inventory metrics and adjusting strategies based on updated data can provide a competitive advantage.

Benefits

This topic is interesting because it directly impacts a company’s financial state and operational efficiency. In my work with ERS, I have seen how proper inventory management can transform a business’s ability to prevent lost sales and maximize profits. Understanding the implications of overstocking and understocking is crucial as it helps craft better strategies and highlights the importance of effective inventory management.