To manage overstock inventory, do your best to avoid it in the first place — careful planning and sales forecasts to project customer demand can help.
Too much inventory isn’t always a bad thing — if your products have long life cycles, you may want to order more to save on ordering costs — but in many cases it can saddle your business with cash flow issues and storage capacity woes.
These are seven good reasons to manage your inventory property:
1. Excess inventory levels can create storage issues
Excess stock takes up valuable storage space.
For example, an e-commerce company might want to capitalize on a trend and order extra products. But what happens to excess inventory if the trend fizzles out? It can cause backup and take up too much space in your storage facility or stock room.
Solution: Refresh your marketing efforts. Move slow-moving or old inventory to a different area in your shop. If the product is listed online, take new photos and write a blog to promote its benefits and uses. Consider creating a sense of urgency with time-sensitive discount prices or promotions.
2. Excess stock can cost you
If you can’t move your excess inventory, it may accumulate and become a storage issue — and storage and warehouse space isn’t free. Storage costs to keep this stock include:
- Rent, maintenance, utilities and insurance
- Employee wages to manage, audit and maintain the extra goods
- Costs as your inventory’s value depreciates over time
Additionally, having more inventory than you can sell ties up cash that could be used to invest in your business or expand operations with new hires.
Solution: Reduce storage space so you’re not carrying costs. Move excess products to your store floor. Consider selling excess inventory to a liquidation company, though it will be at a reduced price. Ultimately, you’ll get a little cash back to help reduce storage costs.
It can also help to build relationships with your suppliers for flexible order quantities and returns.
3. Too many goods can hurt the environment
Too much product impacts more than your bottom line. It can hurt the environment, too. Think about this: The inventory has a carbon footprint because it took energy and water to produce it. When demand is overestimated, carbon emissions go up and manufacturers waste resources — not to mention the excess that may end up in a landfill.
Better demand forecasting can reduce the waste of energy, material and money on needless inventory.
Solution: Carefully plan and forecast your inventory and product needs. Review past sales reports and look for seasonal trends and other pattern fluctuations before ordering new items. Implement an inventory management system to track stock levels and sales performance in real time.
Also, think about ways to turn lemons into lemonade. Can you transform your surplus stock into something new and sellable? Or consider donating items to charity for a tax write-off.
4. Surplus inventory can tie up cash flow
Cash flow is the lifeblood of any business. It’is important to keep cash flowing to invest in the future.
For example, let’s say you own a bike shop and you invest in several items such as performance jerseys, shorts, and other bike clothing and accessories.
But sales are lower than you’d hoped. You’re not seeing a return on the cash you spent to buy the items. With your money tied up in products, your cash flow can suffer — and you may not have the funds to cover the company’s day-to-day expenses.
Solution: When cash flow is an issue, a sales event can attract customers — and their cash — to your store. A flash sale can create a sense of urgency and draw large crowds to your store. Create new displays, identify cross-merchandising opportunities or create a dedicated section for discounted items.
5. Oversupply can lead to stock obsolescence
Technology retail is a good example of products that can become obsolete quickly.
Suppose you sell computers or electronic items. You ordered plenty according to your sales forecast and market demand, but a new model was released before you could sell off your supply. In this case, your items have become devalued or worse — dead stock.
Solution: Act fast to liquidate your stock online at places like eBay or Amazon to reach a wide audience and make room for new products.
6. Too much stock on hand can cause stock degradation
Too much stock means your products aren’t selling as quickly as you’d forecasted. And some items, such as food products, will degrade and lose their value over time. This loss is a common retail business insurance claim.
Solution: To avoid stock degradation, you must carefully forecast inventory needs. Too much can lead to waste and loss. Use sales data to predict customer demand and avoid overordering or overproduction.
7. Excess inventory can reduce profit
If you’re sitting on a lot of products, you may be tempted to cut prices to sell them off. Selling items to capture a partial profit is better than no profit at all, but you’ll likely reduce your margins and make less profit overall.
Solution: Rather than offer steep discounts, introduce product bundling. Group complementary products together and sell them for a slightly lower price than what they’d cost separately. You’ll start to move merchandise without a huge drop in profit margin.
