Working with the right supply chain management company can help companies reduce inventory, speed the time to market, shorten cycle times, decrease costs, and free tied-up cash that can help your company fuel other initiatives. Achieving a reduction in total supply chain lead-time will contribute to inventory reduction and even prevent excess inventory. Read on to learn how incorporating supply chain management can help minimize inventory.
What is Excess Inventory?
Excess inventory is a term used to talk about products that have not yet been sold and exceed the projected consumer demand. Carrying excess inventory is not only inefficient but has many operational costs and financial implications to consider.
In most cases, excess inventory results from forecasting methods, leading to too little or too much stock. Not having the ring demand forecasting software or warehouse management system (WMS) is usually the culprit behind excess ivory. Ignoring seasonality, product lifecycle, and poor purchasing decisions can also lead to excess inventory.
Consequences of Excess Inventory
Excess inventory is regarded as something negative for your business because it will struggle with inventory turnover. Not to mention all the costs associated with managing the inventory. Here are some of the most prominent consequences of excess inventory:
- Ties-up working capital: If cash invested in-stock items is sitting in a warehouse; it’s being wasted on assets that won’t generate revenue soon.
- Increases carrying costs: Carrying costs are all costs associated with storing inventory, and they can be storage space cost, service costs, and capital costs related to the investment of buying the stock itself.
- Goods degradation: When businesses have excess inventory, they often have low inventory turnover, which can cause goods degradation, even of non-perishable items. Usually, this pushes companies to sell merchandise at lower prices to prevent throwing away stock.
Excess Inventory vs. Dead Stock
The terms “excess inventory” and “dead stock” are often used interchangeably because, in essence, they both involve having large amounts of inventory. However, they represent different business outcomes: excess inventory can be an opportunity, whereas dead stock is a liability.
- Excess inventory: This happens when supply outstrips customer demand.
- Dead stock: Inventory that hasn’t sold by the time it reaches the end of its lifecycle and has little chance of selling in the future.
Dead stock refers to unsellable inventory. This can happen when a business orders more than it needs to and then finds it didn’t sell as anticipated. Dead stock can also refer to damaged items, leftover seasonal products, expired materials, and incorrect deliveries.
Having dead stock is costly. When businesses can’t recoup the costs of unsold goods that they’ve manufactured or purchased, it also takes up valuable warehouse space that could be used to house the company’s selling products instead.
How to Handle Excess Inventory Effectively
Excess inventory is a culprit in many companies. Effective inventory management can help improve inventory performance and find opportunities that help reduce losses. Reducing excessive stock is possible with organization and the proper supply chain management logistics. Some tips to resolve excess inventory include:
- Reduce the price of overstock items by offering a promotion or sale.
- Find creative ways to get your customers interested in the product with free trials, samples, and other solutions that might help boost interest.
- If your excess inventory is due to shipment errors, return the product to the seller and maintain your stock levels.
- Sell the products to other retailers or businesses.
- Liquidate the product to an online marketplace or company that liquidates items.
Excess inventory can become an opportunity if you find the right way to handle it and redirect your efforts. Even though you won’t make the same sales or income from your excess inventory, it is still possible to reduce some of your losses.
How to Avoid Excess Inventory
Excess inventory can happen to anyone. But, it’s essential to look back at what went wrong to find out the culprit of your excess stock. First of all, consider investing in inventory management software to accurately assess your product’s supply and demand. Learn more about your customers’ interaction with the product and place orders based on statistics and data.
Part of implementing a strategy to avoid excess inventory in the future is to work with a supply chain management company that can help control inventory quantities. By streamlining the supply chain, you can reduce inventory, speed the time to market, shorten life cycle times, decrease costs, and prevent excess stock.
At last, consider centralizing multiple warehouses for your company if that’s available to you. Centralized inventory can narrow down your order quantities and increase order frequency.
Inventory Management Solutions
The best way to prevent excess inventory is to partner with a full-service, integrated logistics provider like Taylored Services. We can help you efficiently manage your inventory with accurate inventory tracking and updated warehouse management systems. At Taylored, we help e-commerce businesses and companies finally take control of their inventory, track their merchandise, and take their business to the next level.