In this article, we explain what having too much inventory on hand means. We also share our simple 6-step process on how to manage it effectively. Read on to learn more.
Having too much inventory on hand means a business retains a volume of stock that surpasses its anticipated demand or consumption capacity within a designated operational period. This arises when the quantity of goods procured or produced by an enterprise significantly exceeds the rate at which these goods are sold or utilized.
Example: "Baking Delight Bakeries" produced 50,000 units of a new flavor of pastries anticipating high demand. However, they managed to sell only 20,000 units within the first month, resulting in a considerable surplus of unsold goods.
Businesses may find themselves overstocked due to a number of reasons. These include:
Poor Demand Forecasting: Misjudging the demand for a product can result in overordering.
Bulk Purchase Discounts: Companies might over-purchase to avail volume-based discounts, leading to excess stock.
Long Lead Times: Ordering too much inventory to compensate for long supplier lead times.
Seasonal Demand Fluctuations: Not adjusting inventory for seasonal sales can result in surplus.
Inefficient Inventory Systems: Lack of a proper inventory management system can lead to miscalculations.
Change in Market Trends: A sudden shift in consumer preferences can leave previously popular items unsold.
Addressing excess inventory effectively is pivotal for maintaining profitability and cash flow. Follow our simple 6-step process to get started:
Regularly assess your inventory to determine the amount of stock you have on hand compared to what is being sold or used.
Example: "Fashion Hub" found they had 5,000 excess winter jackets at the start of summer.
Liquidate excess stock quickly through sales or special offers. Implementing timely sales promotions or discounts can act as an incentive for customers to purchase products faster.
Example: "Books Galore" offered a 'Buy 2 Get 1 Free' deal to move excess book stock, selling 3,000 units in a week.
Grouping products that are slow-moving with ones that are in high demand can make the slower products more appealing to customers.
Example: A coffee shop introduced a "Mug and Coffee" combo, selling 500 surplus mugs in days.
Explore online platforms or pop-up shops. Diversifying where and how you sell can open up your products to new audiences and markets.
Example: "Crafty Arts" sold 2,000 excess art kits by opening an online store.
Negotiate better terms or find suppliers with shorter lead times. By optimizing supplier relationships, businesses can better align purchasing with actual demand.
Example: "Auto Parts Corp" reduced its lead time by 15 days, reducing overstock.
Adopting a robust inventory management system can offer real-time insights into stock levels, sales rates, and demand forecasts.
Example: "Eco Foods" cut its overstock by 30% after implementing a modern inventory system.
Let’s consider a real-world example: Healthy Wear Inc. is a fitness wear company that found themselves with 10,000 excess pairs of leggings after an optimistic order.
Here’s how they implemented our step-by-step guide above:
Healthy Wear Inc. reviewed their stock and pinpointed an excess of 10,000 pairs of leggings due to an overly optimistic order.
They launched a “Buy One Get One Free” promotion which swiftly moved 6,000 units in just two weeks.
By pairing the leggings with a popular sports bra as a combo deal, Healthy Wear Inc. was able to sell an additional 2,000 pairs.
The company partnered with a renowned fitness influencer, promoting their leggings on the influencer's platform, which resulted in the sale of another 1,500 pairs.
Recognizing the root cause of their inventory issue, Healthy Wear Inc. renegotiated terms with their supplier to better align with actual demand.
To avert future overstock challenges, the company upgraded their inventory system, ensuring real-time tracking and accurate demand forecasting.
We hope this article has given you a better understanding of what it means to have too much inventory on hand and how to manage it effectively.
If you enjoyed this article, you might also like our article on out of stock inventory or our article on closed for inventory.
