How to deal with excess stock in your inventory

How to Deal with Excess
Stock in Your Inventory

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How to Deal with Excess Stock in Your Inventory
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www.salesbabu.com Email: sales@salesbabu.com
“Excess stock in your inventory”, the words itself tells you that your company is facing
the situation of extra inventory in the warehouse, which is holding your working
capital and storage space for new products.
Many companies argue on the advantages of having excess and safety stocks in their
warehouses and believe it’s beneﬁcial in the longer run. Let’s discuss more on the
excess stock situation in our warehouses and ways to deal with it.

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What is Excess Stock?
Excess stock in our inventory are the products that have not been sold and have exceeded
their customer demands. These extra stocks will be lying in the warehouse for any future
demand requirements.
These overstock situations majorly happens due to factors such as over-buying, inaccurate
demand projections, cancelled orders, bad economy state, unforeseen weather, causal
reasons like sale in other competitive brand, or late delivery of goods from the supplier and
more.

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Why Does Excess in Inventory
Exist?
Excess stock in the inventory result due to a number of disruptions in the product demand
supply cycle. Some of the factors are categories below as :-
● 60% Shipment delays - Shipment delay from the suppliers are one of the major
causes of overstocks. A lot of factors are involved in the mismanaged shipment like
processing times, order frequency and international regulations and more which
cause excess and obsolete stocks in the warehouses.
● 25% Technical issues - Various challenges faced due to incorrect demand
forecasting, system integration, incorrect purchase orders, lack of visibility and
planning in the business.
● 15% Other factors - These factors are caused due to returned goods, damages
products due to weather, quality issues in the products and item recalls etc, and
more.

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Advantages of Excess inventory
● Be prepared for increased sales
One of the advantages of high stocks is that companies are always prepared for situations
like increased or excess of product sales. In many cases, during festivals or peak season,
companies run out of stock for the products in demand, but when we keep our warehouses
overstocks with products than the usual sales, we can handle scenarios like excess sales
and peak season product requirements as well.
● Wholesale Pricing
Many business owners can take advantage of wholesale rates when they buy more
quantities of products in bulk. This purchases usually makes sense for regular items which
have a routine requirement in the market and are sure to be sold in the current market
trend or in the near future.
● Full Shelves
When we just keep enough stock to get through the normal sales cycle, products in the
shelves can look sparse as we get closer to the next order cycle. Empty shelves in the
market gives a sense of negativity to the probable customers of the products.
The appearance of full shelves sends a positive message to the customer that business is
good and the store is ready to handle all kinds of demands. Keeping a store stocked with
items to sell, requires adequate planning and some extra inventory in warehouses for
fulfilling a huge amount of customers on an everyday basis.
● Handles Uncertainty
Companies often stock up on their inventory to handle uncertainties in the market and
climatic changes in the environment. Such stocking up of inventory is also called "buffer
inventory or safety stocks".
Many times companies come across external factors which affect the supply and demand
cycle of various products in numerous unanticipated ways. In these scenarios companies
often use these stocked up goods to run the production cycle and continue their smooth
business delivery process. In scenarios like - delay in raw material deliveries, or damaged
goods due to natural calamity etc can be handled with these safety stocks to maintain the
customer delivery deadlines.

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Disadvantages of Excess stock
Obsolete Inventory
In most of the cases, over stocking of products can cause obsolete inventory in the
warehouses. This is true in most of the technology based products, especially in cases of
smartphones and televisions which go obsolete and out of demand in every six month time
frame as soon as a new version of these items hit the market. Other manufacturing sectors
are not an exception to the rule but are hit equally due to changing customer demand and
market trends. One of the equally hit industries is the clothing business, where as the
fashion changes the current set of products quickly become out of demand and cause
huge a lot of products stocked up in warehouses and company godowns.
These overstocked obsolete products are either discarded completed or are sold on
promotional offer which incurs huge losses for the manufacturing firm.
Increased storage costs
Commercial spaces for warehouses and company godowns are usually leased per square
foot. With more products in hand, companies need huge storage place for their inventory.
Huge inventory adds on to the warehouse charges along with more manpower cost for the
warehouse maintenance and other additional upkeep charges like electricity, security and
more.
Also in case of a fire, theft or another natural disaster, not only will the business be
recuperating, it will need to pay higher premiums as insurance rates go up with more
storage space in the warehouses.

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Disadvantages of Excess stock
continues...
Tying up Capital
A company acquires inventory for the purpose of reselling the products at a profit for
turning that inventory purchase cost into cash inflow that can be used to pay the day to day
expenses of the company. With excess inventory in the warehouse, the working capital of
the company decreases as the products are not sold and the invested money is not
recovered and reinvested on other profitable deals.
Obsolete and outdated inventory adds on to the misery for the firm, where companies have
to either sell these products under loss or minimum profit to free up the tied up capital with
the product purchases.

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Excess Inventory and Inventory
Turnover
Inventory turnover measures how quickly a company can sell its inventory and its
comparison against industry averages.
Working on your balanced inventory turnover is a good way of understanding which items
are reducing your cash flow and increasing the cost of your business.
Let’s understand how to deal with excess stock and maintain a stable inventory turnover for
a profitable business strategy:-
A little planning can help you minimize your losses and avoid excess inventory in the first
place, says Lucie Le François, a BDC Business Consultant advising entrepreneurs on
inventory management and business operations.
“It’s a hard decision that people postpone because no one wants to take the hit,” Le
François says.

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How to deal with Excess Stock
Put someone in charge - Management and higher authorities should assign individuals
who can track companies inventory requirement, monitor product trends and provide input
on reordering stock which are having good demand cycle and identify slow moving
products to avoid further stock ups. Close management and accountability of inventory
movement in the warehouses is an excellent way to improve stock management for the
company.
Decide what’s excess inventory - Excess inventory for one company maybe a required
amount for the other ﬁrm. Once we decide on what is the appropriate amount of required
inventory for our company, we can manage the excess amount automatically.
We need to consider factors such as the amount of inventory we need to meet customer or
production demand, also the supplier lead times, storage costs, item shelf life and how
quickly items become obsolete. These factors will help to balance the exact amount
needed for suﬃcing our demand trends and also keep an appropriate amount to handle
excess sales or delay in lead time and more.
Identify excess items - Knowing and identifying your extra stocks are very important. We
should have clear knowledge on which products is too much in our warehouses. We
should take appropriate action to identify the exact reason for these excess products and
avoid any further delay for these product circulation and also abstain from reordering these
stocks.

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How to deal with Excess Stock
continues..
Way ahead - Once we understand the amount of excess stock we have in our warehouses,
we should have a plan on what to do with excess inventory. Options like oﬀering customers
a discount or promotional oﬀer on the excess stock, perks for employees selling more of
outdated stocks, giving these products for charity, return the excess stock to suppliers or
other ways to remove these excess stocks as soon as possible from the warehouses.
In the worst cases, disposing of these outdated and obsolete items turn out to be way more
cheaper than further storing them in the warehouses.
Monitor your inventory- Healthy inventory storage come with good information. A good
inventory management software like SalesBabuCRM, helps in recording the quantities,
location, acquisition date and reordering frequency and other details of all items, which
helps in the overall management of inventory movement in our warehouses.
“It’s very easy to forget about aging inventory, then one day realize, ‘Woah, we have a lot of
stock,’” Le François says.
Proper auditing and regular sync up of the inventory data help in maintaining a balanced
amount of inventory in our stocks.

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Conclusion
Now we understand that excess stocks are an asset in many ways but
managing these extra stocks are even more critical to maintain a well
balanced proﬁtable business strategy.

Contact Us: M: +91 9611 171 345
Thank you for Visiting Us
Our Address
SalesBabu Business Solutions Pvt. Ltd.
No.38/11, 3rd Cross, G Block, Sahakarnagar, Bangalore – 560092
Tel: +91 9611 171 345 ,
Mobile: +91 9341 323 571
E-mail: sales@salesbabu.com
Website: www.salesbabu.com

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