Excess Inventory | 5 mins read

How to Eliminate Excess Inventory Without Losing Money

how to eliminate excess inventory without losing money
Jin Hyun

By Jin Hyun

To reduce stock related expenses such as holding and purchasing costs, it's vital for businesses to understand how to eliminate excess inventory without damaging their reputation and bottom line.

What is Excess Inventory?

When a business has products that exceed the market demand or sell too slowly, this creates excess inventory. Put more simply - it refers to having too much stock and not enough purchases. This lack of inventory control can create financial burdens for businesses by increasing purchasing, labor, and maintenance fees.

The most common causes of excess inventory in a range of industries are-

  • Excess stores - Having too many locations to sell the products, which call for more warehouse storage.
  • Careless inventory management - There isn't a clear or effective procedure for ordering and tracking stock.
  • Late delivery - Delays in getting the stock to the customer, due to internal (order problems) or external (bad weather) factors.
  • Inaccurate predictions - Inability to assess market trends properly.
  • Product changes - Altering the stock through upgrades and innovations, leading to wastage of outdated versions.
  • Slow-moving stock - Keeping the unpopular inventory on shelves, rather than discontinuing that product.
  • Unreliable suppliers - Uncertainty in delivery of stock and supplier lead times can cause over-ordering and poor inventory management.

How to Get Rid of Excess Inventory

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To prevent excess inventory from affecting business operations, it's essential to understand how to get rid of this stock efficiently. When carried out successfully, this would free up storage space and reduce costs associated with managing the inventory.

There are 10 common ways businesses can use to effectively dispose of excess inventory-

1. Re-market
Try to reposition the product physically in the store, or re-brand the marketing if it's online. The product could have been slow-moving not because people don't want it, but because it needs to be sold' in a different way.

2. Employee encouragement
It could also be that the product isn't selling as employees are not recommending them, or unintentionally steering customers away. Check in with staff and communicate the need to move particular stock.

3. More exposure
Double-expose the product to have more of the inventory displayed in the store. Many stores have key areas or locations that are more frequented by shoppers, so try to expose the product in those areas.

4. Strategic discounts
This technique involves more than just lowering the cost, it is about devising a plan for how to market the discount in a way that will yield more success. Create a big and exciting sales event or flash sale for a certain amount of time. Also, apply discounts by increments. Start small and then cut the price more if the product is still not moving.

5. Bundle products
This is another way to quickly move stock. Businesses can create a package' to sell a product as a freebie' or extra' in a bundle. Customers can purchase a collection of items for a cheaper price than if they were to purchase the items separately, making them believe they got a good deal. When used sparingly, this method can increase customer satisfaction while also moving slow-moving stock.

6. Offer freebies
If it is a low-cost product, this would be offered in a way to encourage higher sales. For example, retail shops often host sales events where consumers who spend $100 or more can get a free hat, bag, etc.

7. Exchange or return
The supplier may even let businesses return or exchange excess inventory. Check in with the vendor to see if they offer credit or other options.

8. Get online
Taking the products to Etsy, Amazon, eBay, or other major eCommerce websites may help to move this excess inventory. Note that it is more complex to deal with marketplace policies and fees.

9. Sell the surplus
Sell to liquidation companies that actually specialize in taking excess stock from merchants. Businesses may lose profit by taking this route as these companies generally purchase goods for a very low price point, but it will save from complete stock wastage.

10. Give it away
Finally, businesses can donate excess inventory to charities. This method is especially useful for businesses handling perishable inventory, such as the food and beverage industries. Restaurants and cafes can donate excess food or supply ingredients to local food banks to discard excess inventory. While this will result in a financial loss for the company, in situations where demand falls dramatically (due to global pandemics, for example), it provides a boost in reputation and positive PR to combat the dip in sales.

Disadvantages of Excess Inventory

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If a company is holding on to excess inventory, profit will inevitably be affected. Not only will it cost a company to carry unsold stock, but the costs associated with managing the excess inventory can add up as well.

Below are the four main disadvantages of excess inventory explained.

1. Storage costs
The space used for holding the excess inventory takes away from space that may be needed to display fast-moving stock. Additionally, the cost of utilities in the storage space, and labor wages needed to manage the stock will also drive costs that would otherwise be unnecessary.

2. Wastage
When expired or redundant products have to be thrown away, this can lead to significant financial losses for the business. Fresh produce, medicine, beauty products, and other time-sensitive items can easily turn to wastage if they are not being managed correctly in line with market demand.

3. Reduced profits
All of these costs reduce the overall profits of a business. When companies have to mark a product down to prevent it from becoming obsolete, the profit margins may be significantly lowered.

Maintaining a Healthy Balance

Having additional inventory can provide a safety net for businesses, but there's a fine line between holding an efficient level of safety stock and resulting in carrying excess inventory.

By utilizing inventory management software, businesses can find the balance between having enough products on hand to meet customer demand, while avoiding these excess costs. These tools allow businesses to plan their inventory based on accurate forecasts, receive automated notifications to assist with re-ordering, and perpetually track stock volumes to ensure the balance is always being maintained.