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Business – Excess Inventory or Stock-Outs

Analysis of the factors affecting the inventory level.

Excess inventory or stock-outs may result in financial or operational complications. The quality of goods gets downgraded due to excess inventory. High levels of excess stock lead to low inventory turnover, so the stocks moving are relatively small. Low inventory turnover implies operational inefficiency. Aside from this, every good product has a shelf life and starts to perish when it sits in a warehouse for a long time. Another serious consequence of stock-outs is lost revenue. Companies may incur heavy losses when potential customers place orders and items are out of stock. I investigated the reasons for unoptimized inventory level as I wanted to understand and share the factors that affect the inventory level. Lack of market understanding, product life cycle, high service level aims, poor purchasing decisions, complex/ disrupted supply chain, sales or customer issues, long lead time, improper product management, and system-related problems are some of the vital causes of this problem.

Excess Inventory/ Stock-Outs
  Product management

  •         No process for end-of-life
  •         Inaccurate demand planning
  •         Not producing winning products

Sales/ customer

  •         Lead time
  •         customer specific requirements
  •         Inaccurate sales forecast
  •         High demand variability

  IT/ systems

  •         No visibility on total cost of ownership
  •         Inadequate tools for forecasting
  •         No visibility on customer stock

Supply chain/ operations

  •         Ineffective inventory management system
  •         Wide product portfolio in small quantities
  •         Rigid Planning

Organization

  •         Lack of business process standardization
  •         No shared targets
  •         Only finance & supply chain manage inventory

Purchasing/ suppliers

  •         Long lead times
  •         High minimum order quantities
  •         Quality issues
  •         Limited flexibility (no buying power)

This fishbone is a simple visual diagram to analyze the potential causes in a manner that is easy and gives more clarity. This Ishikawa diagram template contains all the reasons for the problem discussed above.

Who should use the Excess Inventory or Stock-Outs template?

  • This fishbone is very helpful when one wants to understand the factors that affect the inventory level of a manufacturing unit or any business.

Why use this template?

  • Get a proper idea about the reasons for high or low inventory levels..
  • This Ishikawa diagram simplifies the template creation and designing process for other problems. One can customize the template and easily understand the techniques of arranging the causes with the help of smartQED tools to meet their requirements.
  • Create  your own template or reuse this for any type of problem analysis in smartQED

Curated from community experiences and public sources:

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