7 Ways Weak Inventory Management Software Can Lead to Losses

How do you define the success of your retail business? Happy and loyal customers. 

But how do you build that loyal customer base? While factors like pricing and branding matter, the most fundamental necessity is delivering the right product to the right customer at the right time.  

This looks so basic, but in reality, many things have to go hand-in-glove to make it happen–tracking inventory across locations, real time multichannel inventory visibility, and efficient integrations with other systems like order processing, POS, and supply management.

With today’s Gen Z customers expecting features that improve speed and convenience, like BOPIS (Buy-Online-Pickup-In-Store), same-day delivery, etc., businesses have to be on top of their retail inventory management game to be successful.

Research states that 60% of retailers’ inventory records are inaccurate, and accurate inventory management increases sales by 4-8%. Without fool-proof inventory management software, stockouts, overstocking, stock wastage, and delays can cause customer dissatisfaction and reduce profitability.

In this blog, let’s understand the 7 costly retail inventory management errors that lead to losses and how to avoid them.

1. Disorganized Inventory: A Recipe for Lost Revenue

Are you facing inconsistent and unreliable inventory data? Have you mistakenly sold out-of-stock products? Do you lack real-time inventory visibility? Then, it’s more likely that you have a disorganized inventory.

Struggling with inventory chaos? Get a smarter solution today with Ginesys Inventory Management.

Manual or inefficient inventory and warehouse management leads to errors, creating inconsistencies between the actual inventory levels and system stock. Here are some of the common challenges faced in warehouse management:

a. Inefficient Use of Warehouse Space

When stocks are placed in an unorganized manner without a clear structure, storage space is wasted. It could also be due to underutilized vertical storage space, inaccurate categorizing and slotting of goods, and inefficient layout design.

b. Misplaced Products and Operational Delays

Without a clear system for tracking the location of each product, workers spend more time searching for them, slowing down pick-up, packing, and delivery. This inefficiency leads to increased labor costs, wasted time, higher return rates due to incorrect order processing, inaccurate inventory data, and damaged brand reputation.

c. Overstocked and Outdated Products

When there is no clear stock visibility in the warehouse, it could lead to products being stocked beyond optimal levels. This leads to products becoming outdated or spoiled, resulting in financial losses. It also increases the storage and maintenance costs.

Some Solutions to Tackle Disorganized Inventory

• Implement a warehouse and inventory management system
• Optimize warehouse layout with efficient racking systems 
• Effectively utilize space with techniques like cross-docking
• Use inventory management techniques like FIFO, JIT, etc.
• Adopt barcode and RFID scanning to reduce errors.
• Use automated solutions like robotic picking systems, conveyor belts, etc.
• Implement advanced predictive analysis to prevent overstocking and stockouts.

Moreover, businesses should integrate their inventory management software with other retail systems like the POS. By implementing these techniques, retailers can have an organized warehouse and improve efficiency, reduce operational costs, and offer excellent customer experience.

2. Overstocking: When Excess Inventory Becomes a Liability

Retailers stock up on goods as a safety net to serve customers on time and increase profitability. But when you manufacture or buy more products than you can actually sell in a stipulated amount of time, it’s called overstocking or surplus stock.

There are many reasons for retailers to overstock. Some of them are:

Incorrect Demand Forecasting

Predicting the future demands of consumers is crucial to maintaining optimal inventory. When retailers fail to forecast their future demand accurately or when macroeconomic trends are not taken into consideration, it leads to overstocking.

Fear of Stockouts

To avoid loss of sales and customer dissatisfaction due to stockouts, retailers often end up on the opposite end of the spectrum–overstocking.

Anticipating Seasonal Demand

The retail industry is significantly influenced by seasonal demand for products–festivals, weather, and whatnot. Misjudging this demand or timing might lead to overstocking.  

Inefficient Inventory Management

Improper inventory tracking, inefficient coordination between purchase and sales, and a lack of real time inventory visibility might lead to overstocking.

Supply Chain Disruptions

The global supply chain ecosystem could be disrupted by various factors, such as geopolitical instability, pandemics, or natural disasters. To safeguard against such uncertainties, companies tend to overstock.  

Attractive Supplier Discounts and Minimum Order Quantities

Suppliers demand a minimum order quantity (MOQs) for their orders and might also offer discounts for bulk purchases. While this is profitable for the retailers, there should be a tradeoff between cost savings and storage costs.  

Overstocking is a costly mistake for retailers–storage costs, product wastage, tied-up capital, and markdowns to clear their stock. The right balance should be maintained to meet demand without wasting resources.

3. Frequent Stockouts: Lost Sales and Brand Damage

According to an IHL report, inventory distortions led to global annual losses amounting to $818 billion. Out of this, 56% is attributed to stockout or out-of-stock (OOS). When retailers run out of stock, it leads to customer dissatisfaction, and worse, they would turn to their competitors.

OOS is attributed to 3 main reasons:

a) Phantom Inventory

When there is a mismatch between the inventory levels shown in your system and your actual inventory, it is called phantom inventory or inventory discrepancies. This could be due to a human data entry or counting error or loss of stock due to obsolescence.  

b). Unexpected Increase in Demand

When there is a surge in demand for a particular product or when the demand is inaccurately predicted, it leads to stockouts.  

c). Inefficient Stock Management

When various retail systems like POS, purchase, and inventory, are not integrated in real time, it could lead to unexpected stockouts.

Whatever the reason, stockouts lead to lost revenue, customer dissatisfaction, increased operational costs, and damaged brand reputation. Retailers could avoid such repercussions by automating stock replenishments, real time stock management, and integrated systems.

4. Price Inconsistencies: The Silent Profit Killer

In today’s omnichannel retail ecosystem, managing price consistency across various customer touchpoints is no easy feat. When a customer views different pricing, promotions, or discounts on different stores and platforms (online and offline), it leads to decreased trust.  

With lots of purchase options for consumers, maintaining uniformity in pricing is crucial to avoid confusion and save brand reputation. Some common causes for price discrepancies include:

• High shipping costs and other hidden costs – Raw material price changes, fuel price hikes, and supply disruptions cause prices to fluctuate.
• Inaccurate or outdated inventory – Businesses may price their products based on incorrect stock availability.
• Pricing inconsistencies across channels – When you follow manual updations or the system does not update in real time, it leads to discrepancies in pricing.

Businesses must track their customer experience during their check out process with metrics like cart abandonment rate, heat maps, and time spent on page. This data will help analyze moments of customer dissatisfaction. Retailers can understand if their pricing strategy is not in line with customer expectations.

Invest in software to automate price updating in real time across platforms to avoid such inconsistencies. Businesses should also implement robust, integrated inventory management software that tracks inventory in real time and maintains accurate data.

Ensure accurate pricing and seamless shopping experiences with Ginesys.

5. Inventory Shrinkage: Unmonitored Losses That Add Up

For retail businesses, there will be occasions where their actual stock in hand is lesser than the inventory recorded in their system. This inventory shrinkage could be due to a lot of reasons:

a. Stock Theft and Fraud

Theft can happen at any point–at the warehouse by an internal employee or at the retail store by an external shoplifter. Tactics like processing unauthorized discounts, false returns, fake transactions, and manipulating inventory records are also common.  

b. Manual Errors And Accidents

When more tasks are handled manually, there are chances of errors and accidents. For example, the stockist could enter the wrong details during a purchase or stocktaking, or the product could be mistakenly damaged.  

c. Spoilage, If the Goods Are Perishable

Products might outrun their shelf lives, leading to a shrinkage. Food processing industries, restaurants, and grocery stores might have to dispose of the expired products. Similarly, for fashion retailers, stocks might run out of style and become outdated, leading to price markdowns for stock clearance.

d. Defects During Manufacturing and Shipping

Manufacturing defects and damaged packaging could lead to the loss of some products, resulting in shrinkage.

e. Short Shipments and Overbilling

Vendors might deliberately or accidentally bill for more than what is being shipped, leading to shrinkage.

In fact, according to a research about the number of employees involved in theft, in 2023 the number was 1 in 50, whereas in 2024 the number had shot up to 1 in 40. For fashion and accessories, this number could be even higher, translating into huge profitability losses for the retailer.

Inventory shrinkage could have a lot of negative effects on the business–reduced profitability and increasing the price of the current stock to compensate for the shrinkage. This will, in turn, affect customer retention.

Retailers have to understand the main reason for their shrinkage and adopt appropriate strategies to curb these external losses.

6. Supplier Disruptions: When Inventory Gaps Hurt Business Continuity

A global supply chain network is the life and blood of today’s businesses. You procure raw materials, components, or even finished goods from vendors across the globe. As much as businesses benefit from such a vast supply chain network, there are downsides, too.

The pandemic-induced lockdown is a striking example of what supply chain disruptions would do to businesses. It could also be due to a variety of other reasons, like geopolitical tensions, natural disasters, supplier issues, or transportation problems.  

This will lead to an inventory gap. Companies will not be able to meet their customer demands, spoil their reputations, and worse, could even be forced out of the business.  

How to Reduce Supply Disruptions

• Have multiple suppliers: When there is a supply disruption from one supplier, you can always go to another supplier. It could also help you negotiate the price and quality better.
• Keep a buffer stock: This could be your safety net during a supply disruption or a surge in demand to avoid stockout situations.
• Use technology: Inventory management software and supplier management systems will help track performance and delivery timelines.

Minimize supply chain risks with real-time tracking and predictive insights. 

7. Flawed Inventory Data: The Downside of Guesswork in Decision-Making

Incorrect inventory data or phantom inventory is a huge problem for retail businesses. According to a survey, up to 60% of retailers’ inventory data is inaccurate, either overstated or understated. While this could lead to stockouts, overstocking, order processing confusion, lost sales, and dissatisfied customers, it doesn’t end here.

Some of the costs of flawed inventory data are:

a. Increase in Operational Costs

Inaccurate inventory data leads to overstocking or stockouts, leading to holding and handling costs or lost sales. It also leads to inefficient use of resources that could be used elsewhere.

b. Inefficient Order Processing

When the inventory data is not accurate, it leads to confusion in order processing, delayed deliveries, or even cancelled orders.  

c. Lost Customer

Stockouts lead to lost sales opportunities, and the customers will eventually lose trust. They will move to your competitors, leading to decreased loyalty.

d. Difficulty in Strategic Decision Making

Without accurate data on stock, it would be difficult to plan for future production, pricing, and stocking.  

Automation is the key to reducing inaccuracies in inventory data. Assign barcodes and RFID to each product and scan them each time–while purchasing, stocking, and selling. AI-powered analytical models can track inventory, predict future demand, and monitor the system for possible anomalies.  

Moreover, regular stock audits–complete and category-wise–identify issues early on and implement corrective action.  

How Ginesys Helps Businesses Regain Control Over Inventory

Ginesys ERP offers comprehensive Inventory Management software that helps businesses have complete control over their stocks across online, offline, retail, and wholesale. It can be integrated not only with in-house retail systems like POS, WMS, and eCommerce order management but also with third-party systems.  

Ginesys Inventory Management software offers features such as:

1. Real Time Inventory Tracking

By integrating with retail systems and Zwing Mobile Web and mobile POS systems in real time, Ginesys keeps the inventory synchronized across multiple warehouses and retail stores (online and offline). This helps your business maintain 100% stock visibility throughout the supply chain, preventing errors, discrepancies, and increased holding costs.

2. AI-Driven Demand Forecasting

Ginesys ERP integrates with leading AI-powered data analytics tools to analyze historical data for accurate demand forecasting, prevent over- and understocking, and maximize inventory turnover rates.

3. Automated Procurement and Supplier Management

Ginesys integrates with automated smart reordering tools based on predefined stock levels and tracks suppliers for better outcomes. It also simplifies tax compliance by linking GST and HSN codes to inventory and enables bulk tax updates.

The Cost of Inaction: Why Smarter Inventory Management is Non-Negotiable

A weak inventory management system is not only a back-end problem–it directly affects profitability. It leads to overstocking, stockouts, lost sales, dissatisfied customers, and spoiled brand reputation.  

Plug unnecessary financial losses and prepare your business for long-term success with Ginesys. Schedule a demo with us now!