The hidden costs of using spreadsheets to plan your inventory

The vast majority of businesses use spreadsheets to do all or part of their inventory forecasting, planning, and purchasing. Even large businesses with very expensive ERP systems resort to extracting and manipulating data in order to generate forecasts, compute inventory levels, recommend orders, and track outstanding deliveries.

Excel has become the “tool of choice” because anyone can build a spreadsheet, populate it with data, and get an answer. Most people have used Excel to varying degrees; they feel confident building calculations with complex formulas, and they can easily disseminate information via email or shared drives.

The selection of Excel for planning inventory is driven by:

  • Its ease of use and availability
  • The familiarity most of us have with Excel
  • The ability to create fairly complex calculations
  • The lack of functionality in your ERP system
  • The difficulty in using the functionality in your ERP system
  • An unwillingness to understand and use the functionality available

The risks

Whatever the reason(s) for your business selecting Excel as your “planning tool of choice”, there are some hidden costs associated with its use that you need to make sure you are aware of. These include:

  • The risk associated with having one master of the spreadsheet: one individual who builds, extends, customises and populates the spreadsheet
  • Ensuring accurate and consistent data drives the spreadsheet, to minimise the risk of expensive mistakes
  • A level of sophistication in the computations so that optimal inventory levels are used to drive purchasing, resulting in the highest level of service to customers with the lowest possible inventory value
  • Incorporating supply chain complexity, including central warehouse structures, bills of materials and supersessions

We’re only getting started

In the coming weeks, be sure to return to The Inventor Mentor blog for more in this series on how Excel spreadsheets are hurting your business. Coming up, we’ll be highlighting:

  • The risks of spreadsheets in terms of time and money
  • The pros and cons of spreadsheets vs. Inventory Management Systems


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