How Does Negative Inventory Affect Your Business?

Lots of organizations, especially online shopping systems, do not have inventory in stock but they don't update the website as per the inventory availability as a result negative inventory happens. This can hugely impact business, for instance when customers order negative inventory assuming that they will get inventory but most of the time they do not get the required product. As a result, disappointment occurs to customers.

What Is a Negative Inventory?

Negative inventory is that inventory that is mentioned on the website, but you do not have physically, or you are selling inventory that you do not have stock to provide to the customer at that given time. They are very similar to phantom inventory.

Negative inventory is one of the most common problems in the e-commerce industry, manufacturing industry, and all those industries in which inventory is a major part of the business. Negative inventory impacts your business because you are creating bigger issues for your organization.

Also Read: How Do Cloud and Automated Software Solve Inventory Issues?

How Does Negative Inventory Occur?

This is very important that you must figure out that from where negative inventory has occurred in the business. Below we have mentioned a few of the main reasons how negative inventory occurs.

1. Irresponsibility

One of the most common reasons is irresponsibility. Every time inventory is available, but they don't look and due to negligence, negative inventory occurs.

2. Inventory Count Errors

When employees do not count inventory or assume inventory has reached the warehouse but has not reached the warehouse yet. This leads to passing wrong information, this scenario also led to the negative inventory.

3. Using Spreadsheet

The spreadsheet has been used for a long time despite their inaccurate and leading to wrong decisions. Spreadsheets are prone to error because they are accessed by multiple people, and anybody can make a change in the data if one is added or removed it can change the complete output.

4. MIS Calculated Risk

When you put inventory available in stock but it is out of stock that is because you know it will be in stock within two-three days. However, if due to an unexpected issue inventory does not arrive then it will be considered as negative inventory. But you can remove this error quickly.

Most of the time negative inventory is done intentionally and sometimes unintentionally. Above mentioned points are the result of by mistake negative inventory.

5. Location

When you wanted to send inventory to a specific location, but it was sent to some other location. This case also leads to negative inventory.

When you check your total inventory of all locations you get accurate results but when you check to hold inventory location of each warehouse you get different results.

How to Fix Negative Inventory?

In order to fix negative inventory all, you need is to perform a regular audit so that you can get actual numbers of inventory that you have in hand. The audit is a powerful procedure that helps in fixing this issue.

Not only in eliminating negative inventory issues but it can help in several other issues. The audit allows you to verify inventory physically.

Also Read: Explained Inventory Forecasting with Its Benefits & Best Practices

Most of the time inventory audit can be a long and hectic procedure. When you use automated software, this process is simplified, and audits can be completed quickly.

Another solution is using inventory management software that is helpful in inventory audits and eliminating negative inventory issues. Other than this it is also helpful in eliminating other issues such as overstocking and out-of-stock issues.

Inventory management software automates the process. When the process is automated the chances of negative inventory occurring decrease. This software emphasizes keeping accurate inventory and ensuring that data is precise.

Moreover, inventory management software comes with the audit feature. It means that you will get accurate results along with that you can cross-check and identify issues with the audit feature.

With this software, you can know total inventory holding in numbers and specific warehouse inventory holding in numbers.

Another important feature of inventory management software is that it alerts the team in advance whenever the inventory is below the inventory level. So, the person responsible starts the re-order process and inventory issues are avoided easily.

That is why the inventory management software market is rising very quickly! According to Verified Market Research  “Inventory Management Software Market was valued at USD 1213.97 Million in 2020 and is projected to reach USD 2998.55 Million by 2028, growing at a CAGR of 11.9% from 2021 to 2028.”

How Does Negative Inventory Affect Your Business?

Negative inventory affects your business in many ways that we have discussed below:

• Inventory reports will not be accurate and full of errors.
• The accounts balance sheet will be incorrect.
• Profit and expenses will be incorrect as well because goods sold are inaccurate.
• Data mentioned on the balance sheet will be wrong.

Overall, all your accounts information will be inaccurate and wrong, and you cannot rely on account information.

Conclusion

Negative inventory can occur intentionally or unintentionally, but it can impact your business badly. If this problem is not sorted your business will suffer drastically. Therefore, negative inventory techniques shall be avoided in the long term.

It will create problems in the business. Hence, it must be eliminated in order to remove them you can use the audit technique, or you can use inventory management software which is very helpful to businesses in several other ways.

Also Read: Easy Preventive Maintenance by Forming a Preventive Maintenance Checklist

Frequently Asked Questions (FAQs)

1. What are the common issues that inventory management software overcomes?‍

It overcomes issues such as overstocking problems and out-of-stock problems. These issues can be lethal for businesses as businesses can suffer from losses in both cases.

Here is an example when you buy more stock than you can sell then you either sell them at a loss or are unable to sell. Here is an example of an out-of-stock issue, your one stock is selling very fast, and you did not know that you do not have more stock of that particular inventory, so customers keep coming and going out with disappointment. As a result, you lose a lot of potential business.

But you can avoid these issues with inventory management software as it alerts you whenever the stock goes below the defined level, and you can refill quickly without any customer loss.

With data assistance, you can know how much inventory you can sell so you can plan accordingly to avoid overstock issues.

2. How does data help in inventory management effectively?‍

Data allows you to provide crucial information that helps you in making effective business decisions. For example, you can know how much inventory you sell in a year or how much inventory you require in the next few months, and so on.