Almost every small business starting out relies on Microsoft Excel to manage separate business functions. It’s an excellent business tool that is free that everyone already knows how to use, so why not?
When it comes to inventory management, static spreadsheets can be used for everything from manually updating when shipments arrive and are shipped out, to determining what items are in stock, when to replenish, and how much to order. Excel has plenty of valuable features capable of handling a start-up business’ inventory, as long as you put the time and energy into developing an effective governance strategy and template.
While it’s not uncommon to start with Excel for inventory management, it is important to remember that these templates are designed for a small number of products and limited variants. Excel works best when used appropriately, and can negatively impact a business if relied on too much in situations where other tools would work better.
Using Excel as a Low-Cost Inventory Management Solution
Inventory management templates are effective when setting up your inventory. If you’ve ever done a desperate Google search looking for a free inventory spreadsheet template, you know that there are a ton of options from which to choose. A basic template should include key columns like product numbers, product names, item descriptions, item price, item cost or value, item stock, quantity to reorder, quantity sold, time to reorder, etc. Ultimately, you create your template based on your inventory management needs.
Unfortunately, the more columns you have, the more difficult it is to keep up with everything. And this brings us to some of the major risks (and stress) that come with keeping track of your supply and demand with Excel.
Here are 5 risks of using Excel for inventory management:
- Making Mistakes
It is easy to make mistakes in Excel, but difficult to find errors on sheets of numbers and data. To avoid mistakes, you will need to have strict management, proper organization, and regular auditing practices in place for your inventory management spreadsheets. This can be a time-consuming and mind-numbing process, but it’s really the only way to stay on top of human error.
- Out-of-Date Information
Excel is not a real-time inventory management solution, so you will never be able to see the real inventory value at that moment. When using Excel for inventory management, it’s important to make sure that it is updated as often as possible to avoid issues like overselling a product that you cannot back order.
- Inaccurate Reporting
One small mistake in a formula or miscalculation can have a huge impact on the rest of your numbers across multiple worksheets. You can use a few simple Excel formulas to calculate information automatically for total sales and total profit, but when it comes time to make recommendations based on that data, you need to be constantly checking and rechecking your calculations for accuracy.
- Data Consolidation
One of the biggest issues many people have with Excel is not being able to analyze historical data. It might not be a big deal in your first year of business, but as you grow and expand, the data you collect from multiple sources is gold. With it, you can track your sales based on the period for better inventory optimization in the future, etc. It’s certainly possible to manually consolidate your data, but it is time-consuming and laborious, and there are easier ways.
- Data Loss
Even though Microsoft has made huge improvements to Excel in the cloud, users are still infamous for saving spreadsheets to their desktop and forgetting to save it to the cloud or OneDrive. While this can be avoided with a strict set of rules and backups in place, it still causes a lot of complication and uncertainty to those involved in planning and management.
Reap the Benefits of a Dedicated Inventory Management Solution
The bottom line is that Excel does not work with medium to large inventory volumes. Hundreds of columns are too complex, time-consuming, and difficult to keep up to date manually. If you have a growing inventory of products or want to handle multiple location tracking in real time, a dedicated ERP system with inventory management capabilities will be necessary to save time and money in the long run.
We know that it’s hard to make informed decisions and grow your business without the right technology in place. insightsoftware specializes in providing reporting, analytics, and budgeting solutions for ERP customers. With ERPs, you get a dedicated inventory management system that grows with you, managing your sales, inventory management, accounting, and operational processes in one platform. With insightsoftware, you get fast, flexible dashboards and financial reports in Excel and online. No more manual data consolidation. No more out-of-date information. No more risk.
Using Excel will allow you to cut costs at first, but eventually, will result in too many inefficiencies and chaos. A better ERP and reporting solution will eliminate all of the risks included above and give you the tools you need to grow and be successful. For more information about insightsoftware solutions, take a look at our products, or get in touch with a member of our team!