There is a general concept that we have learned in economics – “The supply increases if the demand increases and vice-versa”. But, if the supply (or inventory) is insufficient to fulfill your customers’ needs, it can directly affect the profitability of your business. How? Lack of availability of products leads to breach of customers’ patience and trust, which might force them to go to your competitors. Keeping inventory too low can result in lost sales also known as a stockout. Therefore, it is very important for you to minimize the impact related to stockouts and keep your customers happy and run your business efficiently. There are Enterprise Resource Planning (ERP) systems that can help your company reduce these costs to a minimum.
Loss in revenue
Revenue can quickly dwindle when there are frequent stockouts. Once customers perceive unavailability, they will look for other options. If your product has competitor products, then it will make it difficult to win back users. Therefore, it is important to keep the minimum quantity of the product, which you can take care with the help of a good ERP.
Increase in Internal Costs
To avoid inventory stockouts, businesses cannot go to the other extreme and incur increased internal costs. In this situation, you might place orders exceeding the demand. This leads to hidden costs, such as storage space and inventory services. To handle these situations and remain competitive in the market, it is necessary to determine adequate stock amounts.
Loss in productivity
Handling all the processes manually is time-consuming, tedious, and expensive tasks. For example, due to inventory stockouts, managers are focusing on repairing the situation instead of investing their time planning strategies for the betterment of the business. With planned strategies and good ERP system in line, certain tasks can be automated, which can lead to better utilization of time in other parts of the business.
Conclusion
There are some more hidden costs, such as loss in customers, loss of market competitiveness, and loss in time. This proves that stockouts are expensive and difficult to manage. Therefore, it is necessary to have an ERP system that can mitigate all these costs related to stockouts. This system can provide your business a real-time access to accurate information.
