During the COVID pandemic, supply chain disruptions forced many companies to adopt a just-in-time approach to managing inventory. But this method comes with several disadvantages. How should you proceed now that supply chains are largely back to normal? Outsourcing to a strategic CFO could be a cost-effective, practical solution.

Consequences of Poor Inventory Management

Inventory management is a challenge for most companies in today’s decentralized business environment. You may have a wide variety of items — such as raw materials, work-in-progress and finished goods — held in multiple locations, with employees working in silos that don’t necessarily communication well with each other.

If you wind up with too much inventory, you’ll incur extra carrying costs (like storage, insurance, obsolescence and pilferage). Excess inventory levels drain profits and tie up working capital that could be better spent on alternative projects, including business development or capital investment.

On the other hand, if you carry too little inventory, you won’t have what you need, when you need it. Inadequate inventory levels can result in delays, resource allocation problems and extra costs that reduce profit margins. Employees may also become frustrated by delays from inventory shortages, cutting into their productivity and morale. Even worse, your business reputation may be damaged, and dissatisfied customers may turn to your competitors to meet their needs.

In addition, companies that fail to keep their eyes on inventory often suffer from purchasing issues, such as duplicate purchases and even fraud. They also may have difficulties staying atop critical maintenance that prevents breakdowns and emergency repair expenses. And poor inventory management complicates job costing and reporting, as well as percentage-of-completion method accounting.

Need for an Upgrade

There’s a growing awareness of the importance of effective, real-time inventory management. However, many businesses, especially those in the construction and manufacturing sectors, still rely on paper-based systems. They print out spreadsheets and perform manual counts to compare the recorded figures against the physical inventory, penciling in any discrepancies and later transferring these numbers to update the spreadsheet. Sound familiar?

Manual processes consume time and resources and often require companies to bring on temporary workers or pay overtime wages. These methods also may lead to data entry and other manual errors. And managers who rely on manual processes tend to procrastinate on inventory auditing tasks, leaving them working with figures that are weeks or months out of date.

We Can Help

Automation software and artificial intelligence can streamline your business’s inventory management process. But the options probably seem overwhelming, especially if your management team is stretched thin and doesn’t have extra time to research the right path forward.

The payoffs for effective cost management are significant. Getting work done on time and within (or under) budget plays an integral role in building your company’s long-term value.