It’s no secret that understocking can hurt your bottom line. No business owner wants to risk ending up rejecting projects, proposing longer turnaround times, or otherwise disappointing customers due to inadequate stock.
All the same, it is worth pointing out that overstocking can be just as harmful — even though the effects aren’t always felt in the same dramatic fashion. Here are three ways in which overstocking can cause financial hardship for manufacturing companies.
- Decreasing Working Capital. Access to capital is not always easy to come by. And even if you do have the option of taking out a business loan from time to time, it’s always in your best interest to avoid the inherent risk and the interest payments that come with loans. The more cash your business has on hand at any time, the lower the chances are that you will be forced to look at loans at all. Buying new inventory before you need it eats away at your momentary access to capital even in the best of scenarios.
- Warehousing Costs. Of course, storing inventory isn’t free. The cost of renting out a warehouse, maintaining it, organizing it, and protecting the items you have stored inside can be substantial — and these expenses tend to be higher the more inventory you are storing.
- Depreciation. Wear and tear can eat away at the value of your inventory over time — and changes in demand or technology can even render your inventory obsolete. Keeping a smaller inventory helps you remain more adaptive to change of all kinds.
As you can see, both understocking and overstocking can be quite harmful to your business and to your bottom line. That’s why investing in better inventory management simply makes sense. Visit SMe Software online to learn more about our specialized inventory management system.