Inventory discrepancies might seem unavoidable making many businesses turn a blind eye to the problem, but hidden costs from inventory inaccuracies can significantly impact a business. These hidden costs can lead to lost sales, excess stock, and strained customer relationships, quietly undermining profitability and efficiency. In this blog post we will try to answer the question, what is the cost of inventory inaccuracy?

Why maintaining accurate inventory is so challenging?

Ordering, tracking, validating, and distributing all can get quite complicated and costly. That’s why many retailers give up and just accept that their inventory is a mess. In fact, 43 percent of small businesses in the United States don’t track inventory at all. This is unfortunate and causes losses. It says that the worldwide cost of inventory distortion (including shrinkage, stockouts, and overstock) is an estimated $1.1 Trillion. That’s a crazy amount of money, that retailers could have saved.

In addition to that, here are 5 hidden costs of inventory inaccuracies:

Lost Opportunities

The most significant and likely the most painful consequence of inventory errors is losing sales. Constantly being out of stock or overstocked with the wrong items can result in missed sales opportunities.

Customers seeking a specific item who can't find it will often leave disappointed. They typically won't wait for you to restock but will instead go straight to your competitor to find alternatives.

If items are in the back room or distribution center but not on the shelves, it means you're losing money on those items and missing growth opportunities.

Increased costs

Inventory inaccuracies impact operational costs from various perspectives. First, when your stock levels do not consistently match your records, you need more inventory to compensate for shrinkage and errors. This increases storage and transportation costs.

Additionally, these inaccuracies raise labor costs. When inventory records are inaccurate, more time is spent handling, counting, validating, and searching for missing items, requiring more labor and increasing expenses.

Overall, inaccurate inventory is costly. Reducing stock-outs and overstocks can lower your overall inventory costs by up to 10 percent.

Bad online operations

Today, a seamless omnichannel experience is crucial, not to mention having a strong online presence. Inaccurate inventory management hinders effective online operations.

Without precise knowledge of your stock levels, you cannot sell confidently up to the last item. You need to maintain buffer stock and employ other methods to avoid situations where items are sold out of stock.

Even if customers aren't shopping online, many still visit the brand's website to check item availability before heading to the store, making accuracy extremely important.

Lousy customer experience

We often assume customers are unaware of our behind-the-scenes operations, but poor inventory management is quite apparent to them and harms your brand's reputation.

Consider a shelf stocked with only one size of an item instead of a full range, or a helpful employee who sees the shoe you want in the system but can't find it in the back room. Or, a customer sees online that an item is available at a nearby store, only to find it's not there when they arrive.

These scenarios not only result in lost sales but also make your potential customers view your brand as unprofessional and disorganized. Remember, people are more likely to share bad experiences than good ones.

Poor decision-making

Another hidden cost of inventory inaccuracies is that they lead to future plans and forecasts based on incorrect data, preventing the business from maximizing its growth potential.

For instance, you might think an item isn't selling well because it hasn't sold for a long time, but in reality, it was stolen due to its popularity. If inventory counts aren't done frequently, the theft goes unnoticed, and the item isn't replenished. Decision-makers might then decide not to reorder this item, thinking it's unpopular, when in fact, it's in high demand.

Accurate, real-time data enables businesses to maximize their growth potential. When stock is inaccurate, this potential is lost.

In conclusion, inventory inaccuracies carry significant hidden costs that affect sales, operational efficiency, customer satisfaction, and future growth. By ignoring these issues, businesses risk ongoing financial losses and damage to their brand reputation.

Contact us today to discover uncompromised inventory efficiency and accuracy, using RFID technology, unlocking the full potential of your business.

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