How to deal with excess stock in your inventory (1)

How to Deal with Excess Stock
in Your Inventory
M: +91 9611 171 345 Email: sales@salesbabu.com

How to Deal with Excess Stock in
Your Inventory “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.

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.

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.

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.

Advantages of Excess inventory continues...
● 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.

Disadvantages of Excess inventory
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.

Disadvantages of Excess inventory 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.

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.

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.

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.

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.

How to deal with excess stock in your inventory (1)

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