6 Inventory Management Challenges Facing Distributors (and How to Solve Them)

Being a distributor means getting your customer the right items at the right time. But several forces are working against you in that mission, some within your control. Some, not so much. It’s critical to prepare your company to overcome these six common inventory management challenges.

1. Stockouts & Back Orders

There’s nothing worse than a customer not being able to get what they need when they need it.  Stockouts and back orders may have different causes, but the end result is the same: You can’t meet your customers’ needs.

2. Overstocking

On the other hand, having too much inventory that isn’t moving quickly enough is a big problem. Inventory is cash you can’t spend in other areas of your business. It’s shelf space you can’t allocate to the new products your customers want. And it’s product that you may ultimately have to offer deep discounts on an order to free up that space.

3. Unclear Lead Times with Suppliers

The two problems above don’t happen in a bubble. It’s difficult to provide great service and clear expectations when you don’t know when you’ll be able to fulfill an order because of murky visibility on supplier lead times.

If a supplier is facing challenges of their own, they may implement quotas, meaning you won’t necessarily get your entire order at the same time. Some distributors respond to this by increasing their order volume to ensure enough product to pass on, but inaccurate calculations could leave you with a surplus that you can’t move.

Uncertainty can come from many places—natural disasters, war, a global pandemic, an up-and-down economy—but if you’re not communicating with your supply chain partners through it, you’re likely to end up in the dark with a lot of unhappy customers.

4. Changing Demand

It’s easy to get pulled into the trap of always looking backwards. You get in the habit of basing future demand on past behavior, and that can leave you unprepared for changes in product demand. Instead, you need better communication and visibility into your customers’ needs and plans so you can keep pace.

5. Lack of Visibility Across the Organization

You probably frequently find yourself in a situation where a product you need might be at a different branch, but if you don’t have real-time visibility into what’s going on at the other store, you might not know. In other words, you might be missing an opportunity to provide more efficient service to your customers.

6. Human Error

No matter how good someone is at their job, chances are they will make a mistake at some point in the line. It may be a minor error, such as hitting a wrong key on the product name, but even small errors can create headaches and drive up costs.

For instance, the more times you ask someone to manually enter information, such as inventory information into a variety of systems, the more you increase the chances of an error occurring.

We’ll never be able to eliminate human errors entirely, but the chances can be minimized by implementing tools, such as automation, breaking down silos between systems, and streamlining processes.

The Costs

Each of these problems has a cost. That cost may be monetary or to your business’ reputation. Both are important to keep in mind.

Reputation Risk

Distribution, at its core, is a relationship business. Even in today’s era of ecommerce, customers want to do business with companies they believe are reliable and can help them solve their problems.

Unfortunately, if you slip up, the Internet has only made it easier for customers to share their experiences—both good and bad.

If you’re consistently making mistakes due to human error or failing to provide product in a timely manner, your customers will ultimately be dissatisfied, and your reputation can take a hit. That could affect your ability to acquire new customers or grow sales with your existing customers. After all, if you can’t provide what they want now, why would they trust that you can in the future?

These inventory management challenges can also strain your relationship with your suppliers. Your troubles ripple up the supply chain and could introduce hiccups to their planning and fulfillment processes.

Lost Sales

If a customer needs a product and you can’t deliver, that doesn’t make the need disappear. That sale is likely to go to one of your competitors who isn’t out of stock, knows where the product is, and can deliver it in a timely fashion.

That opens the door to future lost sales, because you’ve already lowered the cost of changing suppliers.

Higher Carrying Costs

Having inventory on hand is a necessary cost for distributors. But having the right amount of inventory is a balancing act.

As noted before, inventory that doesn’t move ties up cash flow, shelf space and energy. But it also has a cost beyond that. This includes expenses such as insurance, climate control, and product depreciation, not to mention risk of obsolescence.

The Solution

The good news is that there are several tools available to help you mitigate the challenges within your supply chain. And one of the best starting points is implementing a software solution, such as Microsoft Dynamics 365 Finance and Supply Chain Management, that helps you address many of them in one place.

Embrace tools that can improve visibility up and down the supply chain to mitigate challenges early. Increase communication with your customers and suppliers so that no one is caught off guard when disruption inevitably occurs.

Don’t stop at external issues, though. Break down the silos within your own organization so that you have better visibility into where everything is and how your team can work together more efficiently.

Linking systems across your organization can also reduce manual data entry. This will not only reduce human errors by transferring data seamlessly between parallel platforms, but it also frees up your team to build your business rather than just manage it.

Talk to us today about how to solve your most pressing inventory management challenges.