How the Actions of a Single Person Managing Inventory Can Cause Detrimental Effects Throughout a Company
Inventory management is often viewed as a back-office operational activity. In reality, it is a strategic pillar of any organization dealing with physical goods. When one individual responsible for inventory makes poor decisions, the ripple effects can be severe. It can impact financial performance, operations, customer satisfaction, supply chain relationships, employee morale, and brand reputation.
The Critical Role of Inventory Management
Inventory management involves controlling the inflow, storage, and outflow of goods to meet customer demand. Because inventory sits at the intersection of procurement, operations, finance, and sales, mistakes in this area rarely stay isolated.
The person managing inventory directly influences key parameters such as reorder points, safety stock levels, lead time buffers, lot size decisions, and obsolescence planning. When any of these parameters are set incorrectly, even small errors can magnify across the organization.
Financial Implications
Poor inventory decisions quickly appear in financial results. Two common scenarios occur:
Overstocking: When the inventory manager orders more than necessary, capital becomes tied up in unsold goods. This reduces liquidity for other priorities such as marketing, research, or equipment upgrades. Excess inventory also drives up carrying costs (storage, insurance, depreciation) and increases the risk of obsolescence or write-offs.
Understocking: When inventory is insufficient, the company experiences stockouts, lost sales, dissatisfied customers, and costly expedited shipments. These reactive measures reduce profit margins and disrupt cash flow.
Even small errors in inventory records can have a measurable financial impact. For example:
A study cited by CAPS Research showed that improving inventory record accuracy from approximately 65% to 95% via a cycle-counting program saved a manufacturing firm about US $330,000 per year compared to performing a single full physical inventory annually (source).
In a distribution environment handling 1,500 orders per day, a 1% error rate in inventory (assuming an average cost of $125 per picking/shipping error) resulted in an estimated US $487,500 in annual costs (source).
These cases underscore that even a 1% deviation in inventory accuracy can translate into hundreds of thousands of dollars in impact, reinforcing that inventory management decisions made by a single person matter far more widely than they might appear.
Inaccurate inventory also distorts the balance sheet. When recorded stock does not match physical stock, financial ratios like the current ratio or inventory turnover become unreliable, reducing confidence among investors, lenders, and executives.
Operational Disruptions
Inventory errors create operational friction across departments:
Excess stock clogs storage areas, slows warehouse operations and reduces picking efficiency. Employees spend more time navigating disorganized stock locations.
Insufficient stock interrupts production, causes delays in customer deliveries and triggers emergency purchasing or overtime. These issues increase costs and reduce productivity.
In multi-location or multi-channel businesses, poor coordination can lead to stock imbalances (too much in one warehouse and too little in another) causing additional transfers and inefficiencies.
Because operations are tightly interconnected, even one inaccurate reorder point or lead time assumption can create production bottlenecks, missed delivery dates, and unnecessary freight expenses.
Customer Satisfaction and Brand Image
Beyond internal disruption, inventory failures can undermine a company’s reputation:
Frequent stockouts, late shipments, and clearance markdowns signal to the market that the company is unreliable or poorly managed.
Negative customer experiences spread quickly through online channels, reducing future sales and weakening brand equity.
Inconsistent inventory between channels (e.g., online vs. retail stores) confuses customers and erodes confidence in product availability.
Over time, inventory mismanagement can shift a company’s market perception from dependable to unpredictable. As a real-world example, a company approached me several years ago to assess the issues with their inventory accuracy. While I did determine the issues quickly, the prior few months of excruciatingly poor online reviews caused so much damage to the company brand, they had to rename, rebrand and relaunch their products into the market.
Supply Chain Relationships
Inventory decisions made by one individual can destabilize supplier relationships:
Erratic ordering (e.g., large bulk orders followed by long periods of inactivity) disrupts supplier production planning and may cause inefficiencies upstream.
Inaccurate forecasts or poor visibility lead to rush orders and expedited shipping, raising procurement costs and straining supplier trust.
Over time, suppliers may increase prices, reduce priority, or impose stricter financial terms on a company that consistently creates chaos within their operations.
What may seem like an internal inventory issue often becomes a supply chain reliability issue, damaging long-term partnerships.
Employee Morale and Productivity
Poor inventory management also affects people inside the organization:
Employees who constantly deal with misplaced items, emergency orders, or excess stock become frustrated and disengaged. “Why can’t we finally get this right?!?”
Continuous disruptions cause higher error rates, rework and returns. This lowers productivity and employee morale.
Managers spend time on administrative corrections instead of process improvement, staff development and strategic decisions.
The human cost of poor inventory decisions often goes unnoticed but has lasting consequences on efficiency and team culture.
Key Takeaways
Although inventory management may appear to be a tactical role, it’s quite strategic. Decisions made by one person can cascade through finance, operations, and customer relationships.
Organizations can protect themselves by:
Reducing reliance on individual judgment: Use data-driven systems and cross-functional reviews for inventory settings.
Integrating inventory management with forecasting, procurement, production and financial planning.
Implementing controls and reviews for safety stock, reorder points, and lead time assumptions.
Investing in analytics and real-time visibility to detect and correct problems early.
Sound inventory management is not just about controlling stock levels. It’s about ensuring financial stability, operational efficiency, and customer satisfaction. A single person’s poor decisions can ripple outward, but so can good decisions. Hiring an inventory manager with the right skill sets and in-depth knowledge and empowering them with data, collaboration, and oversight turns a potential point of failure into a competitive advantage.
