Posted On October 16, 2023
No matter how efficient your operations are, at some point, you will have to deal with excess inventory. While everyone had to deal with supply chain disruptions during the pandemic, the situation has now reversed. Companies are now thinking of ways to manage their stock.
This is true whether you’re a large company or a smaller business. With inflation worries, inventory glut is affecting companies across sectors. According to the US Commerce Department, wholesale inventory-to-sales ratios are still high.
The reasons for excess inventory are many – and the one thing everyone agrees on is that it can hurt profitability.
But, that doesn’t mean there’s nothing you can do.
In this article, we will explore seven proven ways to manage excess inventory.
What is excess inventory?
Excess inventory is inventory that hasn’t been sold and is not expected to sell. It’s also referred to as overstock or dead stock. There’s no fixed timeline for deciding when inventory becomes overstock. It can refer to inventory that’s been in stock for weeks, months, or even years.
What are the causes?
Before explaining why too much inventory is bad, let’s look at what causes it. Excess inventory usually arises due to any or a combination of the following factors:
- Supply chain constraints forcing delayed arrival of stock
- Purchasing unnecessary stock
- Unrealistic forecasting of customer demand
- Changes in the technology or marketplace
- Inventory orders based on misleading customer trends
What are the effects?
Excess inventory puts pressure on companies because you have a situation where the product doesn’t turn into revenue. These are some of the more common effects of overstock inventory:
- It takes much-needed storage space
- Since there’s no sale, it impacts cash flow and revenue
- There’s a higher risk of lost or damaged units
- Profit margins drop when you have unsold inventory
- It makes it difficult to track inventory in real-time
7 ways to manage excess inventory
If you’re wondering how to reduce inventory, here are seven proven ways that businesses can use for excess inventory management.
- Offer discounts
Offering limited-time discounts is one of the most effective ways to sell excess inventory. This will help entice customers who may not have otherwise considered your product or can’t afford it.
This is an excellent opportunity to get rid of excess inventory while getting more customers interested in your product range.
- Bundle products or services
If you’re wondering what happens to excess inventory, here’s something that successful e-commerce stores and retailers do. They bundle their products and services or offer discounts for multiple purchases.
If you’re selling face serum, bundle it with hair gel. This is an effective way to move unpopular products. It also allows customers to try more products from you.
- Offer them as freebies with orders
Regularly offering discounts might affect your brand equity, especially in highly competitive online marketplaces. A solution is to offer overstock as freebies with customer orders that are above a particular threshold. This works well if the product is low-priced or new. This way, more customers can now try out your product.
- Trade with partners
Thinking of how to reduce inventory? Maybe you can share it with your industry partners. Your excess inventory could precisely be what they’re looking at. And they might have something for you.
This kind strategy doesn’t take much time, unlike the others. Moreover, you can build beneficial relationships with other businesses.
- Explore other channels
An omnichannel approach will help you move excess inventory. If you predominantly sell online, now you can reach out to retailers. While this calls for a different sales approach, this can help you move high volumes in each transaction. The trick is to find retailers who would be selling products aligned with your category.
- Remarket overstock inventory
Another way to sell excess inventory is to re-market it to a different group of consumers. You can change your product titles, descriptions, and keywords. You could also change your visuals or add videos to appeal to different customers.
For example, home furnishings needn’t be targeted at just homemakers. You could target working professionals with messages to upgrade their workstations at home.
- Donate for a tax write-off
Donating excess inventory not just helps you get it into the hands of the needy but also gets you a tax deduction. It would be better to discuss your situation with your accountant or tax professional before you donate.
Using any of these ways or a combination of them, you can effectively manage excess inventory without jeopardizing cash flow or profitability.
Note that it is important to consider the specific context and industry when choosing which strategies to employ.
While these strategies provide a solid foundation for inventory management, you need to take all context and nuances into account, to ensure that your approach fits the unique needs of your business.