Poor Inventory Management Examples Made by Huge Brands
As many retailers can attest, poor inventory management can seriously harm a company and its brand/brands, leading to short-term financial damage, a fall in stock prices, bankruptcy, or company closure.
From small businesses to companies with large inventories, there's always a concern with the everyday and long-term challenges of inventory management. Some companies may look at updating legacy management systems, while others look for real-time ways to future-proof the business. High-profile, well-known, and loved brands are not exempt from inventory control problems, and many retailers can learn valuable lessons from their mistakes.
How Poor Inventory Management Can Kill a Brand
When supply chain and inventory problems arise, retailers face some consequences. Here are some poor inventory management examples:
1) Using outdated methods to track items, such as:
- Manual inventory tracking, which becomes time-consuming and error-prone as your company grows. You’ll always be one step behind your actual inventory levels, which will cause ordering issues.
- Excel/electronic spreadsheets, which are prone to severe errors. In a study of errors in 25 sample spreadsheets, the Tuck Business School at Dartmouth College found that 15 workbooks contained 117 errors. While 40% of those errors had little impact on the businesses studied, seven errors caused massive losses of $4 million to $110 million, according to the researchers’ estimates.
2) Too large of an inventory. Reports show that most businesses have 20-40% of their working capital tied up in inventory. If you have a greater amount of product than what demand calls for, you won't be able to fulfill orders optimally. Large stock levels don’t just lead to more management headaches; they can also cut into profits and cause dead stock.
3) Inadequate reports and demand forecasting. When companies don’t use or have access to accurate information such as sales trends, best-selling products, customer behavior, and the like – they fall into the trap of ordering too much inventory. When this happens, companies experience the problems of an excessive amount of finished goods, ordering too few finished products, experiencing shortages, and losing customers. With accurate real-time reporting accessible 24/7, anytime, from anywhere, companies can forecast their customers’ future behavior and order accordingly to meet customer demand without exceeding their budget.
Four Examples of Poor Inventory Management
Let’s take a look at four high-profile brands and how a crisis of inventory created some real problems that companies could have prevented had they managed their inventory properly:
Nike’s Excess Inventory Problem
As one of the world's most recognized athletic brands, Nike has many goods to manage. And as a result, it has had difficulty keeping inventory under control. In the early 2000s, the company adopted an updated inventory management software after losing around $100 million in sales due to issues with tracking goods. The software promised to help Nike predict items that would sell best and prepare the company to meet demands, but bugs and data errors resulted in incorrect demand forecasts and led to millions more lost.
Nike’s case illustrated just how crucial it is to correctly manage stock levels and your inventory management system. When choosing an inventory management solution, it’s vital to ensure the quality of software your vendor provides is accurate, flexible, and customized for your particular business. It needs to be able to grow and change as the business and the customer base change.
Nike continues to have issues with inventory. 2016 was challenging for the retailer, as Nike's gross margin declined due to a higher percentage of discounted sales because of inventory management problems. The retailer continues to take steps to control its inventory management practices through manufacturing overhauls better and allowing new technology to bring manufacturing to the digital age. Ultimately Nike will remain a global leader as it keeps exploring new markets, innovating new products, and generating its supply channels.
Best Buy’s Christmas Inventory Nightmare
In December 2011—smack dab in the middle of the holiday season—Best Buy issued a statement: “Due to the overwhelming demand of hot product offerings on BestBuy.com during the November and December period, we have encountered a situation that has affected redemption of some of our customers’ online orders. We are very sorry for the inconvenience this has caused, and we have notified the affected customers.”
Customers were infuriated by Best Buy’s decision to cancel orders instead of delaying shipment, which was most likely because the company ran out of stock. Reportedly Best Buy sold many of the withdrawn items on Black Friday. The retailer essentially cast a wide net, collecting as many orders as possible, likely knowing it would be unable to fulfill them all.
As Best Buy proved, buying items online as an alternative to in-store still carries a risk. Consumers don't know for a fact that they will get their product. While receipts are issued and shipping estimates are given, some variables still allow consumers to be 100% certain their purchase will be complete every time. It’s not hard to imagine that Best Buy probably lost many of its customers to Amazon after that 2011 debacle.
Target’s Disastrous Failed Expansion into Canada
Target is a well-loved brand in the US, so it seemed only natural that it would be just as well-received with expansion up north into Canada. Target executives had a decision to make. They needed a way to track their stock levels and chose to work with an entirely new and untested system. Target Canada would eventually learn what happens when inexperienced employees working under a tight timeline are expected to launch a retailer using technology that nobody—not even at the US headquarters—understood.
In 2013, the company had trouble moving products from its large distribution centers onto store shelves, leaving Target outlets poorly stocked. It didn’t take long for Target to figure out the underlying cause of the breakdown: The data contained within the company’s supply chain software, which governs the movement of inventory, was riddled with flaws. The checkout system was glitchy and didn’t process transactions properly. Worse, the technology managing inventory and sales were new to the organization; no one seemed to fully understand how it worked.
Why Too Much Inventory is Bad
Besides technology issues, problems of ordering and inventory were running amok. Target stalled items with long lead times coming from overseas—products weren’t fitting into shipping containers as expected, or tariff codes were missing or incomplete. Finished goods that made it to a distribution center couldn’t fulfill orders for shipping to a store. Other items weren’t able to fit correctly onto store shelves. What appeared to be isolated fires quickly became a raging inferno threatening to destroy the company’s supply chain.
Target’s distribution centers were bursting with products and dead stock. Target Canada had ordered way more stock than it could sell. The company had purchased a sophisticated forecasting and replenishment system, but it wasn’t beneficial at the outset, requiring years of historical data to provide meaningful sales forecasts. When the buying team was preparing for store openings, it relied on wildly optimistic projections developed at US headquarters.
Roughly two years after they launched, Target Canada filed for creditor protection, marking the end of its first international foray and one of the most confounding sagas in Canadian corporate history. The debacle cost the parent company billions of dollars, sullied its reputation, and put roughly 17,600 people out of work.
Supply Chain Disruption Closed 900 KFC Branches in the UK
In February 2018, Kentucky Fried Chicken (KFC) was forced to close many of its 900 UK branches due to supply chain disruption. In a press release, the fast-food giant stated, “We've brought a new delivery partner onboard, but they've had a couple of teething problems - getting a fresh chicken out to 900 restaurants across the country is pretty complex!”
By changing their delivery partner, approximately 750 KFC outlets across the UK faced delays in receiving their daily delivery of fresh chicken, meaning their restaurants could not supply customers and ultimately had to close. At the time, many thought the giant could lose up to £ 1 million daily.
Could KFC have done more to ensure their supplier was suitable for the job? The thought is that multiple supplier contracts could have spread KFC could have avoided the weight of the mammoth delivery task and a crisis like this. Another issue was that their supplier only had one distribution spot instead of multiple, which would have been able to service the outlets much more manageable.
What Can Businesses Learn From Inventory Management Problems?
It takes more than having a large inventory of products to keep a retail business running. All that inventory must be stored, moved, and in the right place at the right time. Warehouses need to be efficient, and their tools and workhorse vehicles are kept up to date. Every part of the supply chain needs to coordinate, from obtaining raw materials to distributing finished goods.
The same can be said about the technology to track and manage the inventory as it moves locations. Companies need to know accurate numbers when it comes to inventory. Their livelihood, franchisees, investors, and employees depend on it! When you don’t see what you have or how/when it moves about, there’s no actual knowledge about the most critical aspect of your business – your inventory.
Retailers of all sizes are looking for easy-to-use, mobile, affordable, secure, and rapidly deployable asset tracking systems. They need a reliable method to track the thousands of inventory items that move through their location(s)/warehouses daily. Asset Panda is the answer. We leverage the cloud and free mobile apps to help retailers get the information they need about their inventory. Our retail and small business clients know where their inventory is, who has what, and its condition.
Asset Panda's Inventory Management System
Asset Panda is simple to use with a very intuitive platform. Our system records the entire lifecycle of an asset. Other capabilities include custom reports, depreciation calculation, mobile enterprise service desk, and more. Leading retailers recognize that better inventory tracking processes will lower business costs by reducing loss, property taxes, and the amount of insurance they must carry. All the home offices must run reports to get detailed, real-time data from the field.
Try our inventory management software free for 14 days so you can see what’s truly possible when you manage your inventory the right way! (No credit card required).