This article is aimed at addressing the problem of surplus stock and talk about how to handle it. As a retailer, you should know by now how important stocks are. It might be surprising for you to learn that only 63% of stocks are calculated accurately by retailers around the world. This simply isn’t good enough.
Not to mention the fact that surplus stock keeps your funds tied up and does not allow you to reinvest into something more useful for your business. If stocks are mishandled, or if you don’t have any inventory management system at all, then your goods will turn into losses. As a result, your business will experience chaos and you won’t be able to tell where your money is going. So let’s take a look at what happens to excess inventory in detail.
What causes surplus inventory?
1. Human factor
If a manager places orders manually without a comprehensive auto-order system then they are likely to make mistakes in the process, especially when planning promotions or sales. These initiatives can leave stores with stock shortages, and are open to the whims of the manager responsible for them. However, sometimes, excess inventory issues occur due to factors that are impossible to control and hard to predict. Trends are quickly changing, and it is not that easy to predict demand in the constantly changing modern world.
With the increase in the number of distribution networks managers are trying to reduce logistics costs by economizing supplies to stores. Although this saves on transport costs, it results in more stock languishing on surplus inventories or in warehouses, and of course, there is always a risk of other problems, such as shipment delays, technical issues and force majeure circumstances.
"The bigger the order – the bigger the discounts!" is a common attitude amongst retailers. You buy goods at a bargain price and sell them at near 100% profit, right? Well, it doesn’t always work out like that.
Stocks often require additional maintenance, presentation and shelf life considerations. For a distribution network this can result in the following:
- Increased sales stratification. Managers working with different matrices in stores deal with a large number of potential variations affecting their products every day. While understanding that surpluses for some products exist, managers can end up failing to give enough attention to other products too.
- Low turnover. When the number of goods exceeds demand turnover will drop.
- Limited expansion. If you have too many stores in one area then you’re limited in your ability to drive sales of unique items due to market saturation. The resulting lack of sales will limit your ability to expand more sales of these items into other locations.
- Freshness. If you bought too much food, you could end up wasting money as they go out of date.
Negative consequences of surplus stock
First and foremost, surplus inventory ties up your capital. The whole point of acquiring inventory is reselling it to make a good profit, not letting it sit on the shelf, taking up precious space and resources. Stock turnover is vital for good cash flow and healthy business operations. Think about all the lost profit that excess inventory causes and how much more money you could be making if you could properly manage it.
Surplus stock often becomes useless over time. Many goods are perishable or deteriorating, and need to be unloaded within a certain period of time before the demand decreases or they exceed their shelf life. This is especially important for such items as food and medicine, as these products expire very quickly. And if you overstock, you will not only lose the product, but also suffer substantial losses, as having to dispose of expired products also bears a lot of cost and resources.
Storage cost and capacity is another problem of having excess inventory. Extra space always means extra expenses. And even if you do have a lot of storage space, surplus inventory still takes up extra resources, such as the staff to manage it, transportation, and utilities required to maintain the storage space. Often, businesses are not able to offer new products that are currently in demand to their customers because their shelves are occupied by surplus stock. And the more you wait to solve this problem, the worse it becomes.
How to avoid excess inventory?
Now that we have covered the question of why it is bad to have too much inventory, let’s talk about how to avoid excess and obsolete inventory and empty shelves. Getting rid of the surplus is to some extent a creative process and it can be a difficult task requiring an original approach. However, it’s well worth it as maximizing your stock and surplus inventory will significantly boost your business.
So what can you do? You need to consider a few options of getting rid of surpluses in your network:
1. Return to the supplier
If goods languish in a stockroom for too long they can be returned to the supplier. This is best done if the goods are no longer accounted for in your company’s metrics, especially if the goods are old or have poor turnover. It’s a good way to clear space in your stockroom.
However, a lot of suppliers will not like taking goods back and negotiations can take up both time and money. A lot of paperwork is generated by this method as company managers will need to draw up several lists of supplies, goods, costs and prices, etc.
2. Network distribution
According to restrictions theory, the distribution center is the regulator of the replenishment system. According to this theory, one must maintain stock availability in the absence of surplus at the highest level of accuracy possible.
After a retailer realizes where there is a surplus. and where there is a shortage of goods, it is possible to come up with options for moving stock between stores. This is when you can draw up a comprehensive and accurate surplus inventory.
Only after analyzing the surplus can you understand whether it is advisable to make certain decisions. Always analyze and collect data, consider every metric that you can, and you will be able to ace inventory management and network distribution and maximize your surplus inventory.
3. Optimize and automatize surplus stock management
The best way to solve a problem, sometimes, is to prevent it. Effective excess stock management can be achieved by implementing modern technologies into your business. Using Leafio software, you can gain control of product margins by increasing sales, turnover and decreasing investment, automating routine operational tasks, and continuously controlling and optimizing your inventory, avoiding the problem of surplus stock altogether. Leafio automatically calculates target stock levels and replenishes the inventory whenever necessary, thus optimizing your product range.
Leafio is a next-generation digital supply chain for optimization and automation of surplus stock management. It is capable of making highly accurate demand forecasts and conducting insightful analytics that helps optimize business inventory. For businesses that deal with food products, there is a special fresh algorithm that is designed specifically for perishable goods order management. Orders are generated on the basis of demand, residual shelf life, order execution time, and current balances. This will help you to always keep your inventory fresh and avoid stock surplus.
Thanks to Leafio, you will be able to reduce overstocks significantly, as well as control and optimize your inventory without having to do all the work yourself.
How to sell excess inventory?
Now, the most important question that must be on your mind right now: how do I go about selling excess inventory? If you want to sell it and still make good profit, there are a few ways of doing it.
Reselling it to off-price retailers
The easiest way to liquidate excess inventory at a profit is to sell it to an off-price retailer. These are shops that offer discounts and reduced prices, and they purchase overstock products even if there is not much demand for them. Of course, you might lose some profit, but right now, your task is to minimize your losses, since keeping the surplus stock will inevitably end up costing you a lot more.
If you don’t want to resell it to other retailers, you could try offering discounts on your surplus product at your own store in order to quickly free up the shelves. It’s a great way to get rid of the surplus stock and make a buck.
Clearance sales is another great idea to clear those shelves swiftly. It’s similar to the discount strategy but a lot more full-on. If properly advertised, clearance sales will fill your shop with eager customers at no time. It’s rightfully considered one of the best strategies to liquidate surplus inventory.
Promote your brand by donating the surplus inventory
Donating to charity is always good for business as it creates great publicity. You can donate a part of your excess stock to various charities that are relevant in your area. This will certainly help boost your image and ensure that more customers learn about your store. Besides, donating has another advantage – tax breaks and deductions. There’s almost no reason not to do it.
Don’t underestimate the power of the internet. Online sales are in nowadays, and selling your surplus items on Amazon or eBay could be a great opportunity for you. It will require some work in order to set everything up, but it will certainly pay off. Make sure to get good pictures of your product, as that is the most important thing when it comes to online shopping. Making your products look good will guarantee your success.
Surplus as freebies
Who doesn’t like free stuff? Try to cash in on this idea by creating various incentives for your customers that will get them shopping at your store. You could try giving away your surplus stock as a gift if customers spend a certain amount of money in your shop, or offering an exclusive item for online shopping or if customers buy a certain brand of expensive makeup or perfume at your store. There are many ways to benefit from giving away your surplus for free, just use your imagination!