The hidden costs of spreadsheet errors in supply chain management

Who runs the world? Spreadsheets. That might seem like an overstatement, but you’d be surprised to learn how many companies and supply chains rely on spreadsheets for the day-to-day running of their business. A little more than 67% of supply chain managers use spreadsheets as a supply chain management solution, and spreadsheets are the primary operational tool for about 46% of supply chain experts.

And that’s not necessarily a bad thing. But as your operations grow, spreadsheets could be holding you back. VLookups and IF functions will only get you so far.  We’ll take a look at just how far in a minute, but first, let’s take a look at how they play into warehouse and inventory management.

The role of spreadsheets in supply chain management

We can’t lie. Using warehouse and inventory management spreadsheets to manage data works well — until it doesn’t. 

Thanks to their versatility and user-friendliness, spreadsheets are an excellent fit for a small and growing business. They allow users to adapt their processes to changing business conditions and quickly adjust working methods as they figure out what does and doesn’t work for them.

Spreadsheets all have a critical role in the early stages of a business and are considered invaluable tools for managing warehouse and inventory operations. Inventory management spreadsheets are pulled together to track inventory levels and help forecast, order, receive and allocate stock. Warehouse management spreadsheets assist in managing inventory locations and picking and packing activities.

Operations spreadsheets can be a godsend for those looking to draft a sales and operations (S&OP) plan, calculate lead time, identify potential bottlenecks and determine optimal production sequences — and all without any significant upfront financial investment or lengthy rollout procedures. 

But at some point, your business will reach a breaking point…

The breaking point: When spreadsheets no longer suffice

Along with growth comes an increase in responsibility, longer lists, more SKUs, greater business complexity, and, naturally, a higher potential for error. As things get more complex, resources tighter, and the need for speed, accuracy and a standard way of doing things heightens, warehouse spreadsheets and other spreadsheet-based processes begin to hinder more than help.

A small error in a formulation, a deleted tab, keying errors — what were once perceived as small issues now have dire and costly implications. Suddenly,  as inventory and sales values increase and bigger customers are on the line, an “oops” can lead to a missed order, a lost customer, or, perhaps worse yet, inaccurate financial reporting and massive unexplainable gains or losses.

In the end, Excel is great, but manual processes and supply chain spreadsheets reliant on humans to input critical data and formulate their way to answers simply aren’t scalable, long-term solutions, quickly draining resources and introducing the potential for business-debilitating human error. Humans are only human, after all.

Unmasking the hidden costs of spreadsheet dependency

Researchers Powell, Baker, and Lawson estimated that roughly 94% of spreadsheets deployed in the supply chain management field contain errors.

Common spreadsheet errors, or what the former general manager of Office business applications at Microsoft, Chris Caren, referred to as “errors of input,” can have far-reaching consequences.

First, there’s the cost of errors. Accidentally deleting on-hand inventory from a spreadsheet or inputting a wrong number can lead to significant financial waste, causing redundant orders and expediting costs, missed or shortened production runs, and aged, expired or obsolete inventory as inventory goes unaccounted for, unfound and unused. 

Miss-keying an item or SKU number can have you producing the wrong item, missing sales opportunities and disappointing customers. And larger businesses aren’t immune. In fact, if they remain reliant on spreadsheets, the bigger the business, the bigger the problems. 

Here are a few examples of how even the big guys can take a big hit and suffer an embarrassing public blunder, thanks to their dependency on Excel.

• At Fidelity Magellan Fund, a simple minus sign mistake caused a dividend estimate spreadsheet to be off by $2.6 billion.  
• At Kodak, too many zeros on a spreadsheet lead to a $11 million accrued severance error.
• For TransAlta, a big Canadian power generator, a cut-and-paste error had them hedging contracts at higher prices than it should have. 
• Finally, Fannie Mae, which finances home mortgages, discovered a $1.136 billion error in total shareholder equity after an “honest mistake.”

Second, the guardrails that are built into standard practices are often non-existent in spreadsheets, failing to protect your business and leaving you vulnerable to fraud, theft, and legal consequences. For instance, the three-way match process aligns your purchase order with the goods or services received and compares them to the invoice, ensuring you pay what you should for what you received despite an incorrect packing slip or a damaged or lost shipment.

Quality control processes like recall procedures that trace raw materials to finished goods enable you to effectively locate and quarantine affected products, something available in certain software programs but difficult to produce through spreadsheets.

Lastly, without automation, everything just takes too damn long. It’s frustrating for employees and quickly drains you of your most valuable resource, their time.

Recognizing when it's time to upgrade and moving beyond spreadsheets

As we said, spreadsheets are great, but there comes a time when you must reevaluate what’s truly good for your business and what may be holding you back.

Here are some signs you may not be positioned for growth: 

• You’re tight on resources and need to improve efficiencies
• You’re experiencing a heavy staff turnover rate
• You lack real-time on-hand inventory status
• You notice you’re running out of stock on some items and are overstocked on others
• Your backorders are increasing.
• You’re having difficulty improving your fill rates.
• Your stock pickers can’t find inventory, only to find it later.
• You don’t have the materials you need when you need them.
• You’re experiencing the same issues repeatedly and need to perform root cause analysis.
• You handle perishable products or raw materials that are susceptible to spoilage, expiry or obsolescence.
• You’re failing to meet customer expectations, or your service rates could use some improving.
• You expect to grow beyond one location or have various warehouses or 3PLs to manage.

If you find yourself saying yes to some of these, it may be time to ask yourself some deeper questions. If your business were to be inundated with orders suddenly, would a win turn into a fail? Would opportunity turn into a time of damage control?

Without standard, automated picking, planning and inventory processes that make the most out of your people and resources and enable you to do more with less while mitigating the risks of costly errors, it’s likely your business won’t be able to handle higher volumes effectively, and your margins and your reputation will suffer.

Spreadsheets are indeed flexible and easy to use. But the trade-off is risk and scalability. The question is, is it a tradeoff you can continue to afford?

Once upon a time, Excel was a saving grace for small to medium-sized businesses whose budgets and resources simply weren’t suitable for the cumbersome processes and high upfront costs of large enterprise software like an ERP. Today, cloud-based SaaS platforms lower the barrier to entry to smoother, highly customizable workflows, offering highly flexible, low-code scalable solutions that make for a fast ROI and fill the gaps between existing systems, reducing costs and streamlining operations. 

With visibility into accurate inventory and shipping data, you can minimize waste and meet customers’ expectations.

Aligning with the right supply chain solution partner will enable you to implement effective processes, analyze critical operational data for continuous improvement, reduce waste and loss and improve profits. By remaining proactive and recognizing when your business has reached the limitations of spreadsheets and it’s time to find and incorporate better solutions into your tech stack, you can position yourself for competitive advantage and profitable growth.

Want to learn more? Watch a replay of a PorterLogic webinar that dives into the warning signs that you’ve outgrown your spreadsheets and further guidance on transitioning away from spreadsheet dependency and stepping into efficiency.