What is Inventory Risk? + Management and Solutions

As an ecommerce business, maintaining inventory is make or break for your brand. After all, having inventory on hand is important to keep operations running smoothly and to satisfy customers. But there are various considerations to keep in mind: Do I have enough inventory to meet demand? How can I overcome inventory loss? The list goes on and on.

There’s a certain amount of risk associated with holding inventory. However, there are ways to manage inventory risk to ensure your customers get their order on time and that your bottom line doesn’t take a hit.

In this post, we give you a closer look into inventory risk and the different types you may encounter. We’ll also share how ShipBob provides a solution to these different types of inventory risks.  

What is inventory risk?

Inventory risk is the probability that a business will be unable to sell its products or that its inventory will lose value. In either case, inventory risk results in a business losing money. This makes it crucial for ecommerce businesses to minimise and prevent inventory risk as best as possible with accurate forecasting and inventory management.

6 examples of inventory risk and ShipBob’s solutions

Businesses end up losing money when inventory risk isn’t kept in check. That’s why it’s important to plan your procurement accurately and manage your inventory more effectively to mitigate this risk. There are various different types of inventory risk; here are the top examples of inventory risk and how ShipBob can help solve them. 

Improper demand forecasting

Improper demand forecasting is one of the leading inventory risks.

Getting an accurate prediction of future demand is essential to planning your inventory procurement more effectively. When you underestimate demand, you can end up with stockouts. Meanwhile, overestimating could leave you with excess inventory that remains unsold.

How ShipBob solves improper demand forecasting

ShipBob’s proprietary software provides you with data on inventory performance and stock status at the SKU level. It helps you with inventory planning by delivering accurate insights on how many days you have until an item goes out of stock. It also helps you calculate how much inventory is needed based on your expected increase in sales. As a result, ShipBob’s software helps you reduce inventory risk resulting from demand forecasting inaccuracies.

Shelf life of products

Products with a shorter shelf life, such as perishable goods, pose a significant inventory risk unless properly managed. For example, food and beverage items such as meat, dairy products, fruit, and vegetables require accurate lot tracking and FIFO inventory valuation to avoid inventory risk.  

How ShipBob solves shelf-life problems

With ShipBob, you can leverage a distributed network of fulfilment centres to store your shorter shelf-life products closer to your customers and deliver them promptly. Moreover, ShipBob’s lot system lets you prioritize items with the closest expiration lot date to prevent this type of inventory risk. 

Theft

Theft is one of the biggest inventory risks that ecommerce businesses must face. Whether it’s due to unscrupulous employees or opportunistic thieves, this type of inventory risk can result in significant losses for your business. In fact, inventory shrinkage is costing the retail industry $46.8 billion in the U.S. alone. 

How ShipBob can help mitigate theft

Working with a reliable third-party logistics partner such as ShipBob is one of the best ways to prevent inventory shrinkage. By taking the necessary precautions to safely store your inventory and providing visibility through inventory tracking software, ShipBob allows you to control your stock levels and prevent shrinkage resulting from theft.

Unreliability of suppliers

Imagine working with a supplier who quotes a certain lead time that works for you only to find out that they consistently deliver late, causing you to run out of stock at critical times.

The pains of dealing with an unreliable supplier are not only frustrating, but the long production lead times also pose significant inventory risk. 

ShipBob’s distribution network

ShipBob is a reliable 3PL trusted by thousands of brands. Additionally, ShipBob has an expansive partner network that can help you tackle some product sourcing challenges by reducing lead times and fulfilling B2B orders.

This means that once you find reliable wholesale distributors to work with, ShipBob can handle your B2B/wholesale orders to streamline your supply chain. 

Inventory loss

Businesses sometimes experience inventory loss due to management errors, clerical errors, mishandling, and improper storage. This can pose an inventory risk because the lost inventory must be written off in the company’s balance sheets. As such, the business loses assets and equity.

Track and manage inventory with ShipBob

ShipBob’s software lets you track your inventory in real-time so you can get full visibility into your inventory movement. This allows for real-time inventory management, which involves better inventory control and more accurate reporting. You’ll be able to keep track of on-hand inventory and compare it against inventory history and movement for enhanced inventory reconciliation. With improved transparency into your inventory, you can reduce inventory loss more effectively. 

Damage to inventory

Accidents happen in warehouses, and inventory damage can occur as a result. You may experience inventory damage due to improper storage, unsafe shelving systems, and employee mistakes. Some businesses are at a particularly high risk of damage to inventory because they sell fragile products (i.e., companies that sell glass items). 

Either way, broken or damaged inventory is no longer fit for sale and therefore, loses its value. This not only turns into waste, but also leads to added costs associated with disposing of the damaged items – not to mention the lost sales.

How ShipBob can help reduce damage to inventory

ShipBob prides itself on having a strong track record when it comes to handling inventory professionally to minimise damage. Optimised storage systems, highly skilled warehouse staff, and proper packaging material all contribute to fewer inventory damages that helps reduce inventory risk. Take a guided virtual tour of our fulfilment centre to see how it all works. 

“ShipBob has an excellent system in place, with all the resources, workflows, and processes needed to quickly and accurately fulfil all of our orders, including those that include our fragile glass bulbs and oversize lighting products. We don’t know how ShipBob does it, but it just gets done.”

Waveform Lighting Team

Inventory risk management with ShipBob

With robust proprietary software and world-leading fulfilment services, ShipBob allows you to efficiently manage inventory risk. 

Powerful inventory management software

ShipBob’s inventory management software gives you full visibility into your inventory movement in real-time. This allows you to keep track of how much inventory is available, where inventory is stored, when you’ll need to place reorders, and how much demand is expected. As such, you can plan your procurement more accurately and optimise your inventory management process.

Outsourced warehouse management

With ShipBob, you can outsource your entire warehouse inventory management to the experts. You’ll have a team of professionals handle the entire process of receiving and storing inventory and picking and packing items for fulfilment. When your inventory is in the hands of experts, you’ll see a lower risk of inventory loss, damage, or theft that can pose an inventory risk. 

Moreover, ShipBob employs world-class warehouse management systems to streamline the entire process. Plus, cycle counting is performed every quarter for all SKUs, which makes it easier to spot and fix discrepancies before they turn into more serious issues. 

Get started with ShipBob

If ShipBob’s inventory management software sounds like the tool you need to minimise your brand’s inventory risk, request a quote below to get started.

FAQs

Inventory risks FAQs

Below are answers to top questions about inventory risks.

How do you manage inventory risk?

You can manage inventory risk by utilising robust inventory management software that gives you full visibility into your inventory movement. Working with a reputable 3PL like ShipBob also allows you to leave your inventory management to the experts, helping you reduce inventory risk.

What is inventory risk analysis?

Inventory risk analysis is the process of identifying and assessing potential issues that could result in inventory risk.