---
title: "Four Misconceptions in Distributor Inventory Management"
description: "In daily inventory management, both distributors and retailers face unavoidable issues. Good inventory management can accelerate capital utilization, increase product turnover, and reduce warehouse costs. However, many managers often make mistakes and fall into various misconceptions. The most typical are the following four: Misconception 1: Overeating, leading to inventory backlog. Just as eating too much can cause indigestion and affect overall health, overstocking can lead to capital occupation, increased warehouse costs, and product obsolescence. Misconception 2: Giving up eating for fear of choking, entering a 'starvation state'. After experiencing backlog, some become overly cautious, leading to stockouts and lost sales. Misconception 3: Picky eating, causing 'hidden hunger'. Poor inventory structure, like an unbalanced diet, can lead to inefficiencies. Misconception 4: Not timely 'detoxification'. Failing to clear slow-moving or damaged stock can become a 'tumor' in operations."
author: "沙宗磊"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2015-06-29"
language: "en"
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---

# Four Misconceptions in Distributor Inventory Management

> In daily inventory management, both distributors and retailers face unavoidable issues. Good inventory management can accelerate capital utilization, increase product turnover, and reduce warehouse costs. However, many managers often make mistakes and fall into various misconceptions. The most typical are the following four: Misconception 1: Overeating, leading to inventory backlog. Just as eating too much can cause indigestion and affect overall health, overstocking can lead to capital occupation, increased warehouse costs, and product obsolescence. Misconception 2: Giving up eating for fear of choking, entering a 'starvation state'. After experiencing backlog, some become overly cautious, leading to stockouts and lost sales. Misconception 3: Picky eating, causing 'hidden hunger'. Poor inventory structure, like an unbalanced diet, can lead to inefficiencies. Misconception 4: Not timely 'detoxification'. Failing to clear slow-moving or damaged stock can become a 'tumor' in operations.

In daily inventory management, whether for distributors or the retail industry, inventory management is an unavoidable issue. Good inventory management can not only accelerate the utilization of funds and increase product turnover, but also reduce warehouse usage costs. However, in actual work, many managers tend to make various mistakes and fall into misconceptions. The most typical are the following four:

Misconception 1: Overeating, leading to inventory backlog
Just as eating cannot be done in a binge, as it will cause later indigestion and affect overall health, in actual inventory management, there are often phenomena of 'binge eating'. The main reasons include pressure from company tasks, purchasers' lack of understanding of inventory and sales, backlog caused by acting on impulse, and poor turnover due to buying large quantities of slow-selling products for small gains.

Just as indigestion can affect the normal functioning of other organs, once backlog occurs, a series of problems will appear: First, it leads to an increase in the cost of capital occupation, whereas this money could have been placed in the bank to earn interest. Second, it leads to increased warehouse capacity pressure; warehouse managers will call to complain about insufficient space and apply for external warehouse rental. It also leads to increased warehouse management costs, and the speed and accuracy of picking will decline. In addition, products with shelf life face the risk of loss...

To avoid overeating, one must know how much they can eat. For inventory management, to avoid backlog, first, one must know how much they can sell; sales forecasting is the most basic requirement. We should carefully analyze and forecast historical sales data, rather than relying on rough impressions.

Just as we cannot combine three meals into one, we cannot place a large order at once to 'solve once and for all'. Therefore, setting an appropriate ordering frequency is very necessary. Of course, everything cannot be absolute; special situations require special treatment, such as holiday stocking, bulk purchasing that reduces procurement costs, or grabbing goods when suppliers have short-term shortages.

In addition, we often think that 'after backlog, the supplier can accept returns'. In fact, this does have some effect, but it is only a remedial measure and should be used sparingly. This is like trying to 'vomit' after eating too much; the taste is certainly unpleasant and definitely harms the body.

Misconception 2: Giving up eating for fear of choking, entering a 'starvation state'
Sometimes people go to the other extreme after binge eating, which is 'giving up eating for fear of choking'. Often after active or passive stocking pressure, due to a series of adverse consequences, purchasers become cautious, are wary of manufacturers' temptations and deceptions, and become hesitant to make decisions about market demand. Many naturally think that reducing backlog means reducing orders and inventory levels, which often leads to stockouts. If the human body is undernourished for a long time and in a state of hunger, it will naturally lead to insufficient nutrition and reduced physical activity. Insufficient supply will lead to loss of trading opportunities, causing a decrease in customer satisfaction, and inevitably leading to a decline in sales performance.

So how should stockouts be avoided? I think we should still forecast sales, then order regular products according to the '1.5 times principle', and maintain close contact with the manufacturer's KA during holiday store promotions, preparing store promotion products two months in advance. Establish KA reserve inventory, with purchasers and store promoters proposing a relatively reasonable purchase target based on historical data and relevant manufacturer information.

Misconception 3: Picky eating, leading to 'hidden hunger'
Eating should not only satisfy hunger but also be nutritious, eliminating picky eating. As for the harm of picky eating to the human body, many people know better than me. For example, excessive intake of animal foods and fats, low and overly refined grain consumption, and insufficient intake of micronutrients such as calcium, iron, vitamins A and C, can easily lead to obesity, indirectly causing hypertension, hyperlipidemia, diabetes, etc. Inventory management also emphasizes 'dietary matching and balanced nutrition', which is the issue of inventory structure rationality. It mainly involves the detailed management of purchased product categories.

In home appliance sales, there are sometimes examples like this: a certain model of electric shaver sells more than 1,000 units per month for several consecutive months. You stock according to the 1.5 times principle, but the next month's sales drop to about 500 units. You are puzzled. When you ask the terminal, you find out that this product has two colors. Because the CCTV advertisement features the red color, consumers buy more of that color. However, this batch of goods did not specify the color, and all the ones that came in were black, causing the sales decline.

This requires more detailed category management in inventory management. Sales forecasting should not only be limited to overall sales volume but should also be further subdivided. If you are responsible for many SKUs, you can plan and determine the inventory structure by sub-category. If the number of SKUs is not large, you can even subdivide to the SKU level.

Currently, a more advanced method is the ABC inventory management method, which is actually the application of the 80:20 rule in warehouse management, allocating 80% of funds to the 20% best-selling categories. The ABC inventory classification management method divides inventory items into three levels based on variety and capital occupation: particularly important inventory (A), generally important inventory (B), and unimportant inventory (C), and then manages and controls each level separately. Find the critical few and the trivial many. A items: variety ratio 10%, annual consumption amount ratio 70%, are key managed inventory. B items: variety ratio 20%, annual consumption amount ratio 20%, are routinely managed inventory. C items: variety ratio 70%, annual consumption amount ratio 10%, are the part that needs simplification and general management.

Misconception 4: Not timely 'detoxification'
In inventory management, we often encounter unsalable products, damaged products, or sub-health products. These are the garbage in inventory management. They often become stagnant inventory that accumulates in the warehouse for a long time. The biggest factor affecting our inventory turnover is often these stagnant inventories.

Ancient Chinese health practices emphasize 'detoxification'. If people do not excrete waste from the body for a long time, toxins will accumulate greatly; in mild cases, acne appears on the face, and in severe cases, it can develop into uremia or rectal cancer! Similarly, if stagnant inventory is not handled in time, it will become a 'tumor' in company operations.

To detoxify, you must know the concept of 'inventory age'
People have age, and inventory products also have inventory age. If they are stored in the warehouse for a long time, the value of inventory products will depreciate. Generally, warehouse management has the concept of 'first in, first out'. From the date of entry into the warehouse, different categories of products have different inventory ages. For example, small home appliances generally have 60 days, kitchen and bathroom products 90 days, seasonal products 45 days. Over-age products generally depreciate by 10%-20% per month.

Therefore, a regular inventory age warning mechanism becomes very necessary. Warehouse personnel regularly issue a warehouse product over-age warning table. If a product exceeds its inventory age, immediately activate the product handling mechanism. This requires corresponding coordination between management and finance. Do a good job of product depreciation.

The above four misconceptions are common warehouse management problems. Different industries have slightly different management methods, but the key to avoiding the four misconceptions is only one: do a scientific sales forecast.

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