Why small businesses should switch to inventory management software. How much is spreadsheet-based inventory management costing your business? Chances are more than you think.
Poor inventory management ranks as one of the leading causes of small business failure. Reliance on Excel spreadsheets to control inventory is one of the leading causes of poor inventory management. Businesses who rely on Excel spreadsheets to control their inventory therefore are doomed to fail – or at the very best, operate at a fraction of their potential profitability.
For many small to medium business owners, the logical business syllogism above can be one that is hard to accept. After all, utilizing Excel to manage inventory is a tried and trusted inventory control methodology that is cost-effective, relatively simple and convenient.
In short, it gets the job done – maybe not as well as a sophisticated and powerful inventory management software solution – but it’s dependable nonetheless. And it’s cheap – that is important, especially to a small business adrift in a sea of fierce competition where every outlay of working capital is as precious as each breath to a drowning man.
Short-term savings lead to long-term losses
Many small business owners – particularly inexperienced ones – overvalue the benefit of the short-term cost savings Excel as an inventory management solution provides. At the same time, they undervalue the importance and longer-term contribution an inventory management software system will provide their business – both in terms of radically improved efficiency, reduced operating costs, and maximized profitability.
In case you fall into the segment of business owners who deem Excel to be a sufficient and cost-effective solution for your inventory management needs, we would ask you to consider, very carefully, the following:
Excel can’t keep up with the real-time inventory situation on the ground – It doesn’t matter how fastidious and disciplined you are at recording inventory movements in your Excel spreadsheet, no manual inventory management system can achieve the type of synchronized, real-time data flow control process managers require to ensure inventory levels are accurate, while fluctuations in supply and demand are efficiently met.
Customers today demand timely, accurate and reliable information to be delivered upon request. They need to know if you have what they need, in the quantity they need it, and when they can receive it. With Excel, there is no way to know if inventory levels have changed or what the status of inventory is between the time data was entered into the spreadsheet and when that spreadsheet was last checked.
Costs will compound
The costs of the actual inventory you have on hand being out of sync with what is reflected in the Excel spreadsheet can be significant, and will most likely include missed customer service targets, a rise in stock-out incidences, elevated operating and labor costs, and increased theft, fraud, and obsolescence as a result of bloated levels of unnecessary and slow moving inventory – to name but a few.
Over time, as discrepancies between actual and reported inventory levels grow, practically every node in the supply chain – from forecasting, through purchasing, storage, sales and distribution – will experience a steady decline in efficiency.
Cloud-based SaaS (Software-as-a-Service) inventory management software solutions provide all businesses, from manufacturers to breweries, the ability to track, trace and account for every item of inventory in real-time, and automate critical inventory control functions. This equates to a highly efficient inventory control system that, over time, will contribute significantly to reduced costs and increased profits.
Excel spreadsheets waste time, waste money and waste labor resources – manual data entry is not only time consuming but also prone to errors. Even the most meticulous data entry operator is statistically inclined to make errors when entering information into a spreadsheet – the reported number being 1 error for every 300 characters entered [System ID barcode solutions]. This means that an employee tasked with entering 12 digits UPC or EAN codes into the system will end up inputting 1 error for every 25 codes.
For a business that stocks a large number of items, data entry error alone can lead to some major consequences, foremost of which is the amount of time and labor resources that need to be allocated to tracking down and correcting these errors – both on the ground and in the system. More often than not, by the time the error is identified and corrected the damage is already done. Parts have gone missing, inventory cannot be located and customers end up walking away dissatisfied with their wants unmet.
Accurate analytics and forecasting are impossible – Forecasting future demand is a critical component to successful inventory control. Ensuring that your business has the right amount of inventory on hand to meet demand without burdening the bottom line forms the bedrock of every business.
With Excel, the ability to forecast accurately is severely impaired. Without access to real time data that is synchronized and accessible across the entire supply chain, forecasting moves from being a data-driven enterprise to nothing more than guesswork. This raises the likelihood that your inventory levels will be inaccurate.
The bottom line is that whilst Excel does provide a solution to managing inventory for many small and medium sized businesses, it is a solution that fosters inefficiency, raises unnecessary costs and dampers profitability. While most conscientious business owners couldn’t be faulted for adopting Excel as an inventory management solution in the past – due its cost-effectiveness – the increasing affordability and accessibility of inventory management software solutions on the market today make the choice to remain with spreadsheets much harder to justify.