Why Inventory Problems Keep Coming Back
For many trading and manufacturing companies, inventory is the largest current asset after cash, and sometimes larger than cash. Yet it is often run with tools that do not match its value: a spreadsheet the storekeeper updates at the end of the day, a sales app that cannot see the other warehouse, and an annual count that produces variances nobody can explain.
Inventory problems rarely show up as one crisis. They appear as scattered symptoms. A customer is told an item is out of stock, then someone finds it in another branch. Products expire on the shelf. Cash is tied up in goods that do not move. The CFO does not trust the inventory figure on the balance sheet. Each symptom has a root cause, and fixing the symptom without the cause just moves the problem somewhere else.
This article covers the most common inventory management challenges. For each one we explain how to tell whether you have it, what causes it and what a practical fix looks like, with hypothetical worked examples. We finish with a 90-day plan to set priorities.
Quick Diagnosis: Which Symptoms Do You See?
| Symptom | Likely problem |
|---|---|
| The system shows stock, the shelf is empty | Inaccurate records |
| Cash is tight, the warehouse is full, sales are flat | Overstock or dead stock |
| Orders slip or get cancelled for fast movers | Stockouts and weak reordering |
| Branches phone each other to check balances | No single view of stock |
| Count variances repeat on the same items | Shrinkage or picking errors |
| Regular write-offs of expired goods | Poor batch and expiry control |
| Reported margins do not match reality | Costing errors |
Problem 1: Inaccurate Inventory Records
This is the root problem, because every other decision depends on the recorded balance. If the system says 100 and there are 70, you will promise customers stock you do not have, reorder late, and carry the wrong value on the balance sheet.
Common causes
- Goods released without a document in the system, "to be entered later".
- Receipts that differ from the purchase order with no adjustment to the receiving note.
- Duplicate items under different names, so stock goes out under one code and comes in under another.
- Unit of measure errors, such as booking a carton as a single unit.
- Transactions entered at the end of the day or week.
The fix
Rule one: no movement without a system document at the moment it happens. Then stop relying on the annual count alone and introduce cycle counting, where a small set of items is counted every week and high-value items are counted more often. Track inventory accuracy as a monthly KPI.
Hypothetical example
A cycle count covers 200 items. The recorded balance matches the physical count, within an agreed tolerance, on 176 of them. Accuracy is 88%. The number matters less than the analysis of the 24 mismatches. Are they concentrated in one category, one shift, one transaction type such as returns? That analysis points to the root cause, and the fix is usually procedural: training, a permission change or an extra check at receiving.
Problem 2: Overstock and Dead Stock
Excess stock feels safe, but it is expensive. It ties up cash, occupies space, deteriorates or becomes obsolete, and needs insurance, handling and labor.
Hypothetical carrying cost
A company carries average inventory worth SAR 2 million. If annual carrying cost is estimated at 20% of inventory value, covering cost of capital, rent, insurance and spoilage, that is SAR 400,000 a year. If a quarter of the stock is surplus, the company spends around SAR 100,000 a year storing goods it does not need. Your own percentage will differ; the point is to estimate it for your business.
The accounting angle
Under IAS 2, inventory is measured at the lower of cost and net realizable value. Slow-moving or obsolete goods that can only be sold at a deep discount must be written down, and the write-down hits the income statement.
The fix
- Classify items by value and movement and set a different policy for each class.
- Review a monthly report of items with no movement for 90, 180 and 365 days.
- Tie purchase quantities to actual demand and reorder points, not only to volume discounts.
- Build a clearance plan: promotions, returns to supplier, or transfers to branches that sell the item.
Our article on dead stock covers clearance options in detail.
Problem 3: Stockouts
The flip side of overstock. Running out of a fast mover means lost sales, sometimes a lost customer, and in manufacturing a stopped line.
The fix: reorder points and safety stock
Reorder point equals average daily usage times lead time, plus safety stock. Hypothetical example: an item sells 40 units a day, the supplier's lead time is 10 days and safety stock is set at 120 units. Reorder point = 40 × 10 + 120 = 520 units. When stock reaches 520, the system raises an alert or a suggested purchase order.
Safety stock should be calculated from the variability of demand and of lead time, not guessed. We explain the methods in our article on safety stock.
Problem 4: No Single View Across Branches and Warehouses
A company has a main warehouse in Jeddah and branches in Makkah and Madinah, and each location knows only its own balance. One branch buys an item from the supplier while another sits on surplus of the same item, and sales reps cannot give customers an immediate answer.
The fix
- One system with real-time balances for every warehouse and branch.
- Inter-branch transfers on documents that show goods "in transit" until received.
- Permissions that let sales see available stock in all locations.
- Replenishment reports that suggest a transfer before a purchase.
Hypothetical example
Before Ramadan, the Makkah branch orders 300 units of a seasonal item at SAR 45 each, SAR 13,500, while Madinah holds 250 slow-moving units of the same item. With shared visibility, a transfer of 250 units plus a purchase of 50 would have avoided both a surplus in one branch and tied-up cash in the other. Decisions like this need no complex analysis, just one view of stock.
Problem 5: Manual Processes and Spreadsheets
Spreadsheets are excellent for analysis and poor as a system of record. They do not prevent double entry, keep no log of who changed what, and break when a formula is deleted or a row lands in the wrong place. The more items and transactions you have, the more time goes into reconciliation.
Put a number on it. Hypothetically, a storekeeper and an accountant spend two hours a day between them updating and reconciling sheets: about 44 hours a month over 22 working days. That is enough time for a full weekly cycle count of your top items. Worse, the spreadsheet does not prevent errors; it finds them late, if at all.
The fix is to move records into a system that captures each transaction with its document and scans barcodes at receipt and issue instead of typing. Keep spreadsheets for ad hoc analysis only, fed from the system rather than the other way round.
Problem 6: Weak Demand Forecasting
Buying based on "what we bought last month" ignores seasonality and trends. In Saudi Arabia seasonality is pronounced in many sectors: Ramadan and Eid, back-to-school, summer, and Umrah seasons in Makkah and Madinah.
- Analyze each item's sales by month over prior years, remembering that Ramadan moves about 11 days earlier each Gregorian year.
- Bring sales into seasonal estimates and planned promotions.
- Review the forecast monthly against actuals to improve accuracy.
Problem 7: Unreliable Suppliers and Lead Times
A supplier who promises delivery in a week and delivers in three upends every reorder calculation. Partial deliveries and wrong quantities add work at receiving and matching.
Record the order date and actual receipt date on every purchase order, and calculate each supplier's average lead time and its variability. Use actual figures, not promises, in reorder points. Suppliers who are repeatedly late need an approved alternative. See our article on lead time management.
Problem 8: Shrinkage and Damage
Shrinkage is the gap between recorded and actual stock caused by theft, damage, or picking and receiving errors. You cannot eliminate it, but you can reduce it a lot.
- Segregate duties: whoever receives goods does not approve the supplier invoice, and whoever issues stock does not adjust balances.
- Restrict warehouse access and assign responsibility for each zone.
- Record damage on a document with a reason, never as a silent balance adjustment.
- Analyze variances by item, location and shift.
Measure it as a ratio: unexplained negative variances for the year divided by cost of sales. Hypothetically, SAR 36,000 of unexplained variances against SAR 6 million cost of sales is 0.6%. If most of it sits in ten small, high-value items, those items belong in a locked area with weekly counts.
Problem 9: Expiry and Batch Control
In food, pharmaceuticals and cosmetics, shipping newer stock before older stock means destroying good product. The fix is to record batch and expiry on every movement and pick the earliest expiry first. There is a regulatory side too: the implementing regulations of the Saudi Food Law require factories, warehouses and distribution centers to maintain a food traceability guide, keep traceability records for at least 180 days, and be able to recall non-compliant product.
Problem 10: Costing Errors
If cost of goods sold is wrong, profit is wrong. Typical mistakes: leaving freight and non-recoverable duties out of imported goods' cost, switching costing methods without reason, and using LIFO even though IFRS does not permit it. Acceptable methods are FIFO or weighted average, applied consistently.
Hypothetical landed cost
A shipment of 1,000 units at a purchase price equivalent to SAR 50 each, SAR 50,000, incurs SAR 4,000 international freight, SAR 2,500 customs duty and SAR 1,500 inland transport and clearance. True cost is SAR 58,000, or SAR 58 a unit, not SAR 50. Book the extras as general expenses and the item's margin is overstated by SAR 8 a unit, and pricing decisions rest on the wrong number. Recoverable import VAT is not part of cost.
The Regulatory Angle: Inventory Records
The Commercial Books Law of 1409H requires merchants to record year-end inventory in the inventory book and keep books for ten years. On 27 October 2026 the Council of Ministers approved a new Commercial Transactions Law that replaces the Commercial Law, the Commercial Papers Law and the Commercial Books Law, taking effect 180 days after publication in Umm Al-Qura. Watch for the detailed rules, but the principle will not change: organized, auditable inventory records.
Monthly KPIs to Track
| KPI | Formula | What it reveals |
|---|---|---|
| Inventory accuracy | Matching items ÷ items counted | Transaction discipline |
| Inventory turnover | Annual cost of sales ÷ average inventory | How fast stock turns into sales |
| Days of inventory | 365 ÷ turnover | How long current stock lasts |
| Order fill rate | Orders shipped complete ÷ total orders | Customer impact of stockouts |
| Dead stock ratio | Value with no movement in 180 days ÷ total value | Cash tied up |
| Shrinkage rate | Unexplained variances ÷ cost of sales | Warehouse control |
Hypothetically, SAR 6 million annual cost of sales and SAR 1.5 million average inventory give a turnover of 4, about 91 days of stock. If your main supplier delivers in two weeks, three months of stock is probably more than you need.
Setting Priorities
| Problem | Impact | Effort to fix | Suggested priority |
|---|---|---|---|
| Inaccurate records | Very high | Medium | First |
| No single view | High | Medium | First, with accuracy |
| Stockouts on fast movers | High | Low once accuracy is fixed | Second |
| Dead stock | Medium to high | Low | Second |
| Forecasting | Medium | Medium | Third |
| Costing | High on reporting | Low | Early, with month-end |
A 90-Day Improvement Plan
- Days 1 to 30: clean the item list, stop all undocumented movements, start weekly cycle counts on top-value items and measure current accuracy.
- Days 31 to 60: classify items by value and movement, set reorder points and safety stock for key items, and launch the monthly dead stock report.
- Days 61 to 90: capture actual supplier lead times, start clearing dead stock, review costing and landed costs, then compare KPIs with your baseline.
Where ERP Fits
Most of these fixes depend on unified, real-time data: balances in every warehouse, documented transactions, recorded lead times, batches and expiry dates. In Tranquil, the inventory module handles central inventory, multiple units of measure and assembly, and connects to purchasing, sales and accounting so each transaction updates balances and journals at once. To avoid the mistakes that tend to repeat during rollout, read our article on inventory management mistakes.
Frequently Asked Questions
What is the most common inventory management problem?
Inaccurate records. It is both the most common and the most damaging, because purchasing, sales and financial reporting all rely on the recorded balance.
How often should we count inventory?
A full annual count is needed for year-end, but weekly or monthly cycle counts on groups of items catch errors early. Count high-value items more often.
How do I calculate a reorder point?
Multiply average daily usage by lead time in days, then add safety stock. Use actual recorded lead times, not supplier promises.
Do we have to write down slow-moving stock?
Under IAS 2, inventory is carried at the lower of cost and net realizable value. When net realizable value falls below cost, a write-down is required.
Is an accounting package enough to manage inventory?
For a small business with one warehouse it may do for a while. With multiple branches, many items and batch tracking you need an integrated inventory system. You can contact the Tranquil team to review your current setup.