Did you know that poor inventory management can lead to substantial financial losses? In 2023, IHL Group predicted a loss of over $1.77 trillion due to problems such as overstocking and understocking. That’s a massive amount for something that can be avoided with the right approach to inventory management.
In this guide, we’ll share simple and effective tips for managing your inventory more smoothly, allowing you to keep your business running efficiently and profitably.
Why Do Overstocks and Understocks Happen?
While it might seem simple, inventory management can quickly throw your operations off track if not done right. You could run out of stock or end up with way too much, both of which can harm your bottom line and slow down your business.
To avoid this, the first step is figuring out what went wrong. Here are the most common reasons for overstocks and understocks:
Poor demand forecasting
Demand forecasting enables you to predict what your customers will want and when they will want it. Sounds simple, right? But when it’s not done correctly, things can go downhill fast. Either you don’t have enough stock to meet demand, or you’re stuck with too much of something that’s not selling.
Inaccurate inventory tracking
If you’re not keeping a close eye on your inventory records, small mistakes can quickly turn into bigger problems. Even a tiny error can throw everything off. You might think you have enough stock, only to realize too late that you’ve already run out.
And when that happens? Your team could end up selling something that’s no longer available, which could mean delays, disappointed customers, and complaints. It’s a headache no one wants, especially when it could’ve been avoided with accurate tracking.
Supplier lead time issues
Another common reason inventory goes off track? Supplier lead time issues. Lead time is simply the time between placing an order with your supplier and when that order actually arrives. So, if a supplier promises delivery in one week but takes longer, that delay can seriously mess with your plans.
And it’s not just late deliveries that cause trouble! Getting stocks earlier than expected can also throw things off. If you’re not prepared, you might end up scrambling to make space or adjust your schedule to accommodate everything.
Even if your forecasting is spot on and your inventory is well-tracked, it won’t mean much if your suppliers aren’t reliable. Whether they provide your main product or just a small part of it, having consistent and dependable partners is essential for smooth operations.
Lack of inventory visibility across channels
Get this: businesses today use an average of 10 different channels to sell their products or services. That’s a clear sign that multichannel selling is the new norm. Brands are now branching out to reach more people and avoid limiting themselves to just one platform.
While this strategy does help expand reach, it can also come with inventory tracking challenges. If your sales platforms aren’t connected, they may show different numbers for the same product. This lack of visibility may confuse your team and even disrupt your operation.
Without a clear, real-time view of your inventory, you risk overpromising to your customers and canceling or scrambling to fulfill orders.
Seasonal or promotional miscalculations
Poor planning around holidays or sales promotions is another common reason for inventory issues. It’s easy to underestimate how much stock you’ll need or go overboard and end up with way too much.
Take the holidays, for example. You might expect your usual best-sellers to fly off the shelves, so you stock up early. But then trends shift, and customers end up going for something else entirely. Now you’re stuck with shelves full of products that aren’t moving.
It can go the other way, too! A product you didn’t expect to sell out suddenly becomes a hit, and you don’t have enough stock to keep up with demand.
Either way, these missed opportunities could cost you sales and customer satisfaction.
7 Proven Ways to Avoid Inventory Overstocks and Understocks
With the right systems in place, you can avoid inventory mishaps and stay in control of your stockroom. Here are seven simple but effective ways to keep things running smoothly:
1. Forecast smarter, not harder
A good forecast shows you what’s flying off the shelves, what you need to restock, and what’s just sitting there collecting dust. To get it right, you can rely on a mix of tools and methods like:
• Looking at past sales to see what’s worked before
• Spotting trends and patterns (like seasonal spikes or sudden dips)
• Listening to feedback from customers and the team
• Using software to track all the data in one place
When you forecast based on facts, not guesses, you’re already one step ahead.
2. Automate your inventory tracking
When you’re just starting out, manually tracking inventory can work for a while. But if you’re planning to grow, automation is the way to go!
With automation tools like Arvist, you can track your inbound and outbound shipments in real-time, identify quality issues or wrong quantities early, and mitigate the risk of disruptions. Arvist helps you catch issues before they snowball, whether it’s:
• Detecting damaged or mislabeled shipments
• Identifying mispicks or wrong quantities
• Verifying expiry dates
• Flagging incorrect deliveries
And more.
Plus, it supports automated quality checks and damage assessments, so you’re not just reacting to problems but staying ahead of them. This means less room for error, fewer chargebacks, and happier customers.
3. Set minimum and maximum stock levels
One of the simplest ways to avoid overstocking or running out of stock is by setting up alerts in your system. Some platforms can let you set minimum and maximum stock levels. This way, you’ll always have a clear picture of what’s in store without constantly checking things manually.
You can even add a little buffer to be extra safe. Doing so gives you ample time to prepare, restock smartly, and stay ahead of any surprises.
4. Audit regularly
Make it a habit to check your inventory regularly, whether weekly, monthly, or on whatever schedule works best for your business. Inventory audits help you see what you actually have and compare it with your records to ensure everything adds up.
Even if you’re using automation, no system is perfect. Mistakes can still happen, especially when people are involved. That’s why regular audits are important. They help you catch errors early on.
Besides, audits also give you better insight into how your products are performing. You can spot which items aren’t moving as expected, find patterns, and make the proper adjustments to keep your business running efficiently and profitably.
5. Work closely with suppliers
One of the best ways to avoid overstocking or understocking is by having a strong relationship with your suppliers. You should both understand how each other operates, creating a partnership that benefits both sides.
Open communication is key so that if any issues arise, you can make the necessary adjustments quickly to avoid disrupting your business. It’s all about collaboration and making sure both sides are on the same page to keep everything running smoothly.
6. Split your inventory wisely
As the saying goes, don’t put all your eggs in one basket. This applies to your inventory, especially if you’re selling to customers in different areas. Splitting your inventory allows you to easily address any issues at one location. This way, other fulfillment centers can step in and help fulfill orders, keeping everything running smoothly.
Plus, spreading your products across different locations can help reduce costs. With inventory closer to your customers, you can cut down on logistics expenses and deliver products faster. This improves customer satisfaction and saves money in the long run.
7. Plan for seasonality and promos
There are times when business is slow, and there are also busy seasons when customers order more than usual, like Black Friday, Christmas, and Thanksgiving. These times may not happen often, but they are great opportunities for your business to sell products. That’s why it’s important to always be prepared.
One of the best ways to plan for busy seasons is to review your previous data. Examining how your business performed in past busy seasons helps you make smarter decisions and ensures you’re stocked up and ready for the demand.
Manage Your Inventory Seamlessly with MyFBAPrep
Staying on top of your inventory doesn’t have to be complicated. From smarter forecasting and automation to regular audits and strong supplier relationships, consistent small steps can greatly impact your inventory management.
At MyFBAPrep, we make it easier for businesses to stay ahead. Through our partnerships with tech providers like Arvist, we can give you access to AI-powered tools that ensure real-time accuracy, detect issues early, and help you avoid costly overstocks or stockouts.
Stop losing money to stockouts and excess inventory. Talk to our experts today and start maximizing your margins.
About the Author, Tom Wicky.
Tom Wicky, CEO of MyFBAPrep
Tom Wicky is an entrepreneur, startup advisor, and management consultant with over 20 years of senior management experience. He is the Co-Founder and CEO of MyFBAPrep, the largest worldwide 3PL ecommerce warehouse network. He managed the digital assets of local media companies across Europe as part of a $2 billion private equity investment led by Macquarie Bank. At the beginning of the Amazon FBA Marketplace, Tom built a data automation platform used to programmatically generate, manage and optimize over 1 million product listings on Amazon. He is a Boston sports fanatic and a recovering hot sauce junkie. Tom speaks Spanish and German and lives in Florida with his wife and three children.
You can connect with Tom on LinkedIn or learn more about MyFBAPrep by visiting MyFBAPrep.com.
