Systematic inventory control is quintessential for any business. You should be sure enough that there is the proper stock of every item and it needs to be updated with precise inventory records. But the biggest issue is having a negative inventory and Sage ERP can help you remove these inefficiencies.
Let us explore more about having a negative inventory in this blog post.
What is a Negative Inventory?
It means that the count of inventory indicates having less than zero of an item. Having a negative inventory is a sign of a very poor inventory management system. This issue is getting avoided by most companies and they try to fix when it turns into a serious issue. So in this scenario, the better approach is to stay proactive where you will find ways to prevent negative inventory and avoid the issues from being created every time.
What are the main reasons for negative inventory?
Negative inventory has a wide range of factors and no single issue exists that would affect the organization.
First, the timing is an issue which may happen when an inventory shipment is saved as a complete transaction even though it seems to be in production process. However, a negative balance of the inventory can also occur when there is a delay in processing the products as well as on the shelves of warehouses.
Second, it may cause if there are some issues in the product that causes a reduced number of produced products when compared to their requirement. Suppose, there are a number of warehouses having the same inventory types then this also results in a negative inventory.
<<Also Read: Importance Of Inventory Management Software For Small Businesses>>
Types of Negative Inventory
To turn your bad inventory into a positive one, you should first understand its types-
Location- If any error is occurred in recording a transfer of stock like entering the inappropriate values, or placing orders from the wrong locations, you should keep a better record of it.
Negative stock- It is a quite serious issue when compared to the finished products since this more often connects with a manufacturing flaw or workflow. So, you should dig better to see why products or materials are showcasing a bad balance meanwhile production.
Time- While correcting i.e. when a product is marked as shipped before it is being finished, it is very essential to not overstate the amount and should keep in mind that the missed inventory is still there in the stock.
How can you deal with it?
Stay proactive and take every essential step to prevent the occurrence of a negative inventory.
Check areas in your business process and workflow that could increase the negative inventory balance and then fix those issues immediately.
Deploying Sage ERP software at production management companies will help you manage inventory efficaciously along with some precision as well. The software will offer a myriad of benefits offering real-time data access, sending alerts and notifications to low stock levels, and assisting in restoring essential items to have continuous and smooth production.
Sage ERP is an effective ERP solution that will undoubtedly helps you get the right amount of inventory for sales requirements, and production requirements, along with the cost of inventory management.
<<Also Read: How ERP Software improves Inventory Management System?>>
Steps to Perform to Remove Negative Inventory
Once the issue has occurred, check-
- How & what exactly has it happened?
- Why and when did the issue happen?
- For the items that are in negative balance along with its amount
- All the latest transactions and see what other things have to be done to remove the errors
- If that was the timing issue or the production issue, or if there is any mismatch of product quantity
- Lastly if there are any serious flaws in the manufacturing function?
The Effects of Not Fixing Negative Inventory
The negative inventory gives a number of bad effects on a company if it is not well-fixed.
One of the most crucial effect is that the company may not be able to meet its deadlines given to customers and suppliers. This can lead to a loss of business and even bankruptcy, at times.
Secondly, the negative inventory may develop financial complications for the organization that may affect the ability to invest in new products. It may also affect in making other necessary expenditures.
Finally, it may lead to employee morale reduction since they may feel insecure about their organization.
<<Also Read: 10 Inventory Management Trends to Watch for in 2023>>
Final Thoughts
It is quite vital to be aware of inventory management top strategies which can help you identify as well as solve the issues in your organization.
Cleaning the negative inventory may enhance the total inventory present for the final sales or production. But, resetting the negative balances without having any knowledge is definitely not a good decision. This may lead to a bad impression with respect to the availability of inventory leading to overselling. Also, it may happen that other locations may have equal amounts of excess inventory due to receiving errors made by certain employees at that preferred location.
So, resolving them should be of first priority!
