Five Of The Most Important Types of Inventory Risks

While inventory management is beneficial and necessary for businesses that handle physical stock, it comes with some risks. Those risks can have a big impact on the whole process of stock management as well as on customer satisfaction. Also, most of the time you can avoid them but other times you cannot. Since companies invest a lot of financial resources into their inventory, they need to also prepare accordingly to steer clear of those risks. Let’s take a look at some of the most important types of inventory management risks.

What Is An Inventory Risk?

It’s the possibility of something happening to the inventory that will impact the sales of products and therefore decrease the value of the stock. This means that a company might not be able to sell the inventory in time for different reasons. As a consequence, the total value of inventory will go down.

Types of Inventory Risks

1. Supplier delays and mistakes

Suppliers are one of the most important parts of inventory management because your inventory depends on the suppliers. Sometimes mistakes and delays might happen on the supplier’s side. Your vendor might not send the correct products or the correct quantity. The quality of the products might also not fit your standards. Your order might also get delayed because the supplier didn’t adhere to the agreed date.

All of those mistakes can have an impact, either small or big, on the whole process of inventory management. You risk having delayed production, not having enough inventory to meet demands, and disappointing your customers. That’s why you need reliable suppliers that will deliver good quality products in time.

2. Theft

It’s not a secret that theft happens in all companies that deal with stock. No matter what the value of the inventory is, you will encounter missing items more than you think. Whether it’s one of your employees or someone random that got ahold of your inventory, it’s bound to happen at some point. While there are measures to prevent theft, you won’t be able to fully eliminate this risk.

3. Lifespan of products

If your inventory consists of perishable goods or products with an expiration date, you risk not selling those in time. Also, the shorter the expiration date, the bigger the risk. That’s why techniques like overstocking can have an even bigger impact on your business. Additionally, no matter how much you try to prevent your products from spoiling, it will still happen occasionally.

4. Damages

Some businesses have a higher chance of encountering damage than others. Products that are heavier or fragile, are more likely to get physically damaged than products like clothing. Whether it’s internal or external the result is the same, inventory is unusable. An example of damage can be accidents inside the warehouse such as dropping products from the shelves. Another example could be caused by weather, like the flooding of the warehouse. Lastly, damages to your inventory might happen during transportation. With proper care, it’s rare to have damages occur to your inventory but never fully unavoidable.

5. Changes In Demand

One of the common mistakes in inventory management is overstocking. But sometimes you might not be doing it on purpose. Let’s say you have a high demand for a specific product so you make sure to always have enough inventory. But at some point, the demand decreases for various reasons. You are left now with excess inventory that you might not be able to sell anymore. This is one of the risks you can face especially when your product is in the last stages of its life cycle. You might not always be able to foresee it, but keeping track of the market trends, as well as not overstocking, might help to prevent this from happening.

Conclusions

To summarize, there are different types of inventory risks that sometimes are preventable and other times are not. While unreliable suppliers, theft, short shelf life, damages, and excess inventory can be managed, it can only happen to some extent. After that, those risks might happen on rare occasions and you have to be prepared to deal with them.