Ways to Handle Excess Inventory in Retail
Inventory is the cornerstone of any company, so any company should manage its inventory well and avoid excess inventory. Especially since poor inventory management causes waste of resources, which can cost the company more huge additional expenses. When the inventory in the company exceeds a certain limit, this means that excess problems occur, which results in huge problems for the company that we will review in detail in our article. We will also show a set of effective ways to get rid of excess inventory, and deal with it properly while reducing the resulting costs.
What is excess inventory?
Excess inventory is when a company’s inventory contains an excess of what is required, which, if not disposed of promptly, will incur significant costs to the company.
Especially since excess problems, if it remains in warehouses for a long time, can be damaged, and thus lose its value or decrease its value and lose its profits.
What causes excess inventory?
Most of the causes of excess problems are related to poor planning and inventory management or problems related to the sales movement.
And the following is the most prominent of these reasons:
Using outdated methods of inventory management
If you don’t know what inventory is in stock then you are definitely at risk of having a lot of excess inventory that you don’t pay attention to.
Also, manual inventory counting is time consuming and also does not provide accurate data on the status of inventory.
Unlike using automated inventory counting, relying on proper inventory management software. This helps in:
- Setting minimum and optimum inventory levels.
- Making sure that the products your customers need are available.
- Checking that there is no large surplus in stock periodically.
The presence of inaccurate data on the sales movement
The most common cause of excess inventory is the presence of a large amount of goods that users do not have a high demand for.
But inventory management software can help you forecast the demand for your inventory and manage enterprise resources by creating reports on the sale status of products.
As well as identifying the best-selling products in certain periods, which enables you to measure sales of similar products to avoid excess inventory.
Besides the previous reasons, there are a number of other important reasons that may be a major factor in the occurrence of excess problems in retail. Such as:
- Inaccurate sales projections.
- Delivery delays and failures.
- Product returns and canceled orders.
- Negative economic conditions.
- Overpurchasing.
- Volatile consumer demand.
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What are the main disadvantages of excess inventory?
Many companies think that having excess problems is a good thing, but in reality it is quite the opposite.
Excess inventory negatively affects the revenue a company generates, as well as the amount of working capital it has.
Here are a number of points explaining the most important disadvantages of excess problem:
- The occurrence of problems in the company’s cash flow, and this is due to the negative impact of this surplus on the operating capital owned by the company.
- Loss of more revenue resulting from the presence of additional stock that cannot be sold and obtain its profits or its value decreases as a result of its stagnation in warehouses.
- Increase operating costs as a result of this inventory occupying space in warehouses, and companies bear the cost of that space with no return from it.
- Decrease in the value of stagnant inventory in warehouses, as a result of its presence for a long time, and thus its quality deteriorates, which affects profit margins.
- Negatively affecting the company’s financial outlook, due to lack of clarity in the inventory turnover rate.
- Decrease inventory turnover and increased storage costs, which affects the company’s financial position.
Options for excess inventory management
There are many options that retailers can rely on to better manage excess inventory and reduce the damage caused by it. Here are the most important options that retailers can count on:
1. Sell at a discount
One of the most important options that can help you get rid of excess inventory quickly is to make discounts on those products. This enables companies to:
- Bear the least amount of loss possible.
- Compensate for losses resulting from stagnation of inventory in warehouses as a result of an excess of it.
2. Sell in bulk to discount stores
One way to get rid of excess problems is wholesale, i.e. selling most of the quantity to one party at a discount.
3. Keep in stock and wait for next season
This option is suitable only for commodities that can retain their value over a suitable period of time, so that traders keep that quantity until the next season and then sell it.
4. Using technology to turn over inventory quickly
Due to the current situation and the increasing complexity of supply chains and their disruptions at times, the process of forecasting stock levels and predicting market demand has become more complex.
But the inclusion of technology in inventory management processes can help solve this dilemma, through the use of the latest technology to track inventory.
Thus, stock levels are monitored and future orders are forecasted more accurately, based on available data.
This helps to increase delivery efficiency and reduce delivery costs, thus successfully reducing excess inventory levels.
And LOGSTIAT can provide you with the best inventory management systems that will help you keep accurate inventory tracking.
Thus, determining the appropriate stock levels, and avoiding stock shortages or overstocking, which positively affects your profit margins.
How to eliminate excess inventory
The problem of excess inventory can be solved in the use of modern technology and techniques, such as inventory management systems.
Which will help in managing surplus cases as well as reduce the losses resulting from them, and this means reaping more profits.
Creative discounts can also help counteract this problem, as they encourage consumers to buy large quantities of items.
Thus helping to increase sales and make up for lost profit margins during periods of inventory surpluses.
