What are the Risks of Overstocking?

What are the Risks of Overstocking?

In most industries, there are clear risks associated with excess inventory. 

Whether your excess stock is made up of raw materials, finished goods or spare parts, having too much inventory means you need more space for storage, and a greater degree of organization to keep track of it all. This takes more time to do properly, which may cost your business more money than it needs to spend.

As a business owner, you know that having too much stock doesn’t just affect your storage capacity and your organizational and storage costs. Overstocking inventory also eats up your existing working capital, which means you’re not allocating your resources as efficiently as you could be. Why pay for a shelf full of parts you’ll never use when you could hire a much-needed new employee instead?

So what is the solution to having too much inventory? A proper inventory management system, of course!

What is the Purpose of Inventory Management?

Inventory management is the way organizations keep track of their stock mix, and how they understand the external and internal demands on their inventory. 

An example of an external demand on a retailer’s unsold inventory could be the popularity of a certain product with customers. A greater customer demand for a product would equate to a greater external demand. 

On the other side of the coin, an internal demand could represent the need for a product from within your organization. A power generation company, for example, might have a high level of internal demand for a crucial replacement part on one of their critical assets. Without it, downtime could result – a costly prospect.

A proper inventory control system will balance these external and internal demands and keep a company’s supplies at the right levels. While too little inventory will prevent you from making a large profit or maintaining an efficient production operation, too much inventory results in wasted time, money and effort, and will leave you with either unsold or obsolete inventory over time. 

The trick is to have just enough inventory, and the key to having the right inventory levels is having accurate data. 

How Do I Meet Customer Demand Without Having Too Much Inventory?

warehouse with fully stocked shelves

As mentioned above, having the right data at your fingertips is crucial to keep profits high and avoiding overstock.

It’s important both for selling products without experiencing inconvenient stock outs and unnecessary lost sales, as well as for having the right tools and spare parts on hand to avoid operational bottlenecks and unplanned downtime. 

This is especially true for asset-intensive industries, and having a well-organized Maintenance, Repair and Operations (MRO) inventory management system is a must to avoid overstocking your shelves and suffering the higher costs associated warehousing those goods. 

Today’s manufacturers, pharmaceutical companies, power generation businesses and others must navigate a complex ecosystem of interconnected software products to keep track of all the data under their purview. Fortunately, if organized and presented properly, the data will enable a higher quality of decision making, as well as provide the kind of accurate insights that can increase profitability over the long term. 

This is where using the right master data management tools comes into play. With the right master data management tools and data governance systems in place (including data cleansing tools, descriptive taxonomies and industry-specific visualization tools) companies like Xtivity can help organizations maintain and improve the quality of their data, and improve their inventory management. 

In asset-intensive industries in particular, more accurate and more relevant data will not only help avoid the risk of overstocking, it will improve asset reliability in your MRO supply chain, improve service levels, and help you better-allocate your working capital over time. 

Avoid Overstocking, Improve Service Levels and Raise Profitability with Xtivity

If you’re interested in more accurate information, a better inventory mix, less wasted capital and providing better services, reach out to Xtivity for an inventory management software solution that works. Their inventory optimization software and managed services can help massively reduce downtime while also delivering significant cost savings, no matter your industry.