Inventory Risk: 7 Examples and Solutions

When you start thinking about inventory risk, it can be hard to stop. The questions can seem endless: “What if we can’t meet demand with the inventory we have?” “Is this stock going to sell in time to make space for our new orders?” “What do we do about loss and theft?”

Although these are all valid concerns, you can manage inventory risk with the right strategy and with help from inventory optimization software, keeping your customers happy and your costs low.

In this article, you’ll learn what inventory risk is, how it can hurt your business and the solutions to some common inventory risk examples.

Table of Contents

• What is Inventory Risk?
• 7 Inventory Risk Examples and Solutions
• How Can Poor Inventory Risk Management Hurt Your Business?
• Inventory Risk Management with Singuli

What is Inventory Risk?

Inventory risk is the likelihood of a business failing to sell its products or of a reduction in inventory value. It’s vital that any business with an inventory manages and, more importantly, minimizes inventory risk as effectively as possible.

7 Inventory Risk Examples and Solutions

Let’s look at seven of the most prevalent inventory risk examples and solutions:

1. Inaccurate Inventory Forecasting

Example

If your retail demand planning is inaccurate, you’ll either overestimate or underestimate what you require to fulfill your customers’ needs. This means you’ll end up with too much or too little stock, causing stockouts and overstocks. Both scenarios are bad for business.

Singuli’s Solution

Accurate inventory forecasting is about compiling as much data as possible and using the relevant information to predict the future. It’s not an easy task. You have to think about size curves, seasonality, ABC analysis and a number of other factors. The best solution is finding the right inventory optimization software to do it for you.

💡Pro Tip: Get a holistic view of your inventory data with Singuli’s Reporting & Analytics. Track not only inventory data, but also marketing, promotions, site traffic, historical sales and customer behavior. You’ll have all of your information in one place, ready to use in inventory forecasting and planning.

2. Unpredictable Supply Chain

Example

With inconsistent lead times, it can seem impossible to plan. The causes vary: An unreliable supplier, a natural disaster, even a global pandemic. Whatever the reason, it causes havoc with your inventory.

Singuli’s Solution

Be prepared for any scenario. You don’t know what’s going to happen tomorrow, but that doesn’t mean you don’t need a plan. Build strong relationships with suppliers so you’re always their priority, have a list of backup suppliers and use software to keep track of lead times, landed costs and any other relevant information.

💡Pro Tip: Plan for multiple versions of the future with Singuli’s Scenarios. Ask “what if” and get answers immediately.

3. Inventory Loss

Example

Losing inventory is frustrating and damaging to your business. It affects business assets and equity, and it means you need to write off missing inventory in your company’s balance sheets. Whether it happens because of management error, mishandling or improper storage, you need to stay on top of it.

Singuli’s Solution

The best way to manage inventory loss is to know what’s happening, when it’s happening. Accurating reporting and transparency with the right software means you can see what’s missing, why it’s missing and how often things go missing. You can also add the information to your forecasts so you can replace the stock quickly enough to fulfill customer demand.

💡Pro Tip: Use Singuli to automate your inventory planning. Automatically sync your expected receipts with the warehouse, keep track of your landed costs and share ETA dates with your freight forwarder with Purchase Orders and Shipments.

4. Theft

Example

Another big hit to your inventory can be theft. In retail, you’re always keeping an eye on passersby who might not be looking to buy from you but still want to leave with your goods. You sometimes even have to look internally at employees. No matter who’s stealing from you, you’re the one losing out.

Singuli’s Solution

Just like with loss, the best way to mitigate against theft is to know it’s happening. Use inventory management software to keep an eye on what you should have, and do regular counts to assess any discrepancies. Of course, it’s also important to safely store your inventory and to have security measures in place.

5. Damage

Example

Accidents happen all the time, especially in warehouses. There’s a lot to look after and, often, there’s heavy machinery involved in moving products from place to place. It’s worse for companies that sell fragile items like glasses or certain electronics. If you damage your stock, you often can’t sell it or have to offer it at a reduced price. If you have to dispose of a product, there are often costs involved with that too.

Singuli’s Solution

Handle with care. You need to make sure you have systems in place and procedures for staff that make sure fragile products are taken extra care of and items aren’t thrown around. If your software tells you there’s a lot of product being damaged in a particular zone or even with the supplier before they reach you, you can investigate further and come to a resolution.

6. Short Shelf Life

Example

Certain products like perishable goods have a short shelf life. If you don’t sell them before they reach their expiry date, you can’t sell them at all.

Singuli’s Solution

One of the reasons for perishable goods going beyond their expiry date is bad forecasting or not forecasting for multiple locations. Inventory planning software with an omnichannel forecasting solution makes sure you have the right quantity of stock for demand in each location, which reduces waste.

💡Pro Tip: Use Singuli’s real-time channel-aware forecasting to maximize sales in every location.

7. Product Life Cycle

Example

There comes a point in every product’s life cycle when it stops being the best thing since sliced bread and starts its inevitable decline. It might not be quite that dramatic, but every product goes through an introduction to growth, maturity, decline and eventual withdrawal. At the moment of its decline, it becomes an inventory risk. Demand starts to change, so your forecasts need to change too.

Singuli’s Solution

This is where a truly great inventory optimization software stands out. Forecasting with little or no change in the market is challenging enough, but understanding where a product is in its life cycle and preparing for the unexpected is a harder challenge. The best software takes every possibility into account and constantly keeps an eye on each potential forecasting influence. The best solution to product life cycle risk is to buy the best inventory optimization software.

How Can Poor Inventory Risk Management Hurt Your Business?

Now that you’ve seen some examples of inventory risk, it’s important to see exactly how the problems they cause can hurt your business:

Stockouts

All seven of the inventory risks above can cause stockouts, and when they happen, your business has to deal with stockout costs, including lost sales, lost customers, dents in supplier relationships and having to pay more for a speedy delivery.

You can avoid stockouts with accurate demand forecasting and by using the right inventory optimization software. One important feature to look out for is new product forecasting. When you’re launching a new product, it’s harder to predict demand but if you don’t, stockouts can happen.

💡Pro Tip: Create accurate forecasts to prevent stockouts using Singuli’s Advanced Demand Forecasting.

Overstocks

Trying to manage inventory risks can lead to ordering too much. This causes overstocking, and just like stockouts, overstocks incur heavy costs. The extra inventory takes up space that could be used by better selling stock, you can end up with end-of-life products that you can’t sell any more and you have to pay for storage.

Avoiding overstocks is just as important as avoiding stockouts, but the right inventory planning software helps with that too. Make sure the software you pick has automated reorder points and takes safety stock into consideration.

📌Get Started: Optimize your inventory levels and reduce overstocks. Use Singuli to replenish the right amount of stock at the right time so your inventory costs stay low.

Product Recall

When you work with food, drink or medical supplies, there’s always a prospect of product recall. You have to abide by these rules and you want to make sure your customers don’t gain any ill effects, but keeping track and acting quickly can be a challenge. Inventory optimization software can keep track of exactly where each product was sold from and to, so you can keep your customers safe.

Inventory Risk Management with Singuli

You know what inventory risk is, how it affects your business and the importance of using the right software. Choose Singuli to support inventory risk management with accurate product forecasting, detailed supply chain management and careful consideration of your business needs.

Inventory Risk FAQ

What is an Example of Inventory Risk?

One clear example of inventory risk is theft. Businesses spend millions to protect their stock, especially if they handle high value items. Some other examples are loss, damage and inaccurate inventory forecasting.

What is the Main Risk of Holding Inventory?

Holding inventory has many risks, including planning for the end of a product life cycle and not selling perishables before their expiry date. The main risk of holding inventory comes from inaccurate inventory forecasting, which can cause stockouts and overstocks.

What is the Risk of High Inventory?

If your business has high inventory, you risk causing overstocks, which can limit cash flow, reduce profits and increase storage costs. There is also a possibility that the product will no longer be desirable to your customers and you’ll have to dispose of it without making any revenue.