The goal is to turn inventory into cash. When inventory sits around, it's taking valuable space that can negate profits. Excess inventory management strategies are necessary to reduce the chances of an oversupply of low-demand merchandise. Here are essential insights into managing excess inventory.
Definition Of Excess Inventory
Logistics experts define excess inventory management as products that don't sell quickly as they approach their end-of-life marketing cycle. Here are the six stages of a product life cycle:
Stages 2 through 5 are the main stages involving warehousing and transportation for the original manufacturer. There are usually multiple competitors selling the same product by the saturation stage. This is the turning point where a brand must step up and outshine competitors or start to mix in with the pack. When demand begins to peak after this point, it's time to reduce inventory levels of the product.
Some of the significant excess inventory problems include tying up cash flow, taking revenue losses, and disposing of wasted resources.
Typical Causes Of Inventory Surpluses
- Inaccurate market demand assessment: Poor forecasting can result from a lack of market expertise or unforeseen economic challenges.
- Poor inventory management: Efficient storage space allocation is essential to inventory management. Without it, you might have low-demand items taking up space that hotter-selling products would better occupy.
- Supply chain shocks: There might be a truck driver shortage due to a strike or drivers moving on to other careers. Giant ocean liners might tie up ports, which slows down deliveries and spikes storage fees. Shipping delays and supply shortages can occur for numerous reasons, such as countries going to war or issues related to international regulations.
- Changes in consumer behavior: Market trends come and go, as consumer demand can be erratic.
- Lack of appropriate inventory management software: If you don't have the right technology to manage your supplies, it can lead to technical difficulties, errors in order fulfillment, disorganization, and mismanagement leading to financial losses.
Keeping Inventory Under Control
One of the best ways to manage inventory is with inventory management software. It will allow you to track the exact counts and locations of inventory items. You'll receive alerts when overstocking or low supply is a concern, which will help you make more accurate forecasts on supply and demand. You'll also have greater control over tracking orders and sales. Your inventory software platform can generate real-time reports on multiple metrics relevant to storage and shipping.
An effective way to reduce slow-moving or excess inventory is to sell items to an off-price store that sells popular brand items at a discount. You can also sell to liquidators who resell items at discounts. Another effective method is to bundle different products and sell packages to retailers at discounts.
These strategies may lead to financial losses, but it's better than getting stuck with old inventory that loses market value by the day while occupying precious space. You can also reduce excess inventory by donating items to charity or giving them away as prizes.
When it comes to perishable goods such as food and medicine, it's best to pay attention to expiration dates and sell off items at discounts as deadlines approach. Ideally, you'll learn which of these items move slowly and keep low inventories of such products. The software helps you prioritize and optimize inventory levels based on demand. Ultimately, it will streamline and accelerate the ordering process, which is key to achieving customer satisfaction.
Inventory Turnover Analytics
Studying inventory turnover is one of the essential strategies for preventing excess inventory from building up. This metric reflects the number of times stock sells out and is restocked at a specific time. It helps provide insights into market demand. It allows you and investors to compare your turnover rates with national averages.
The inventory turnover ratio is calculated by dividing the cost of goods sold (COGS) by the average inventory. Average inventory is determined by adding the beginning and ending inventory items and then dividing by two. It's often a monthly figure.
Facing Supply Chain Challenges
Various supply chain challenges can clutter your warehousing or slow down deliveries. Labor shortages countered by hiring untrained beginners can lead to multiple stocking and shipping errors. But automation software can be a solid solution for reducing errors and speeding up processes while cutting costs.
Adopt Flexible Delivery Schedules
Another way to keep inventory under control is to use delivery methods that don't require meeting strict deadlines. When you adopt a drop trailer program, you can open up more flexible delivery scheduling. This program allows a truck driver to drop off a load at a transport hub where the receiving team unloads products. Either the original or next truck driver allows a particular time window for the truck to be emptied.
Outsourcing to a third-party logistics (3PL) firm can connect you with a drop trailer program. Many manufacturers do so to lower shipping and storage costs. Letting a 3PL manage your inventory allows you to utilize storage space more efficiently. Modern 3PLs have a competitive edge if they maximize Industry 4.0 technology, including AI, IoT, automation, and 5G.
Managing excess inventory is critical to a company's profit margin. Investing in the right inventory tracking technology will help your team stay on top of real-time inventory issues. You'll avoid the pitfalls of excess inventory. Learn more about logistics insights from a pallet factory near you.