Excess Inventory Crisis: A Nightmare for Retailers
Do you know what makes our skin crawl and gives us goosebumps? No, it’s not true crime documentaries or murder mysteries; it is the thought of an excess inventory crisis.
If you are in the logistics business in any capacity, we are sure you will agree with us on this one. Excess inventory can cause many problems, some of which can get out of hand before you even realise that something’s amiss.
Unfortunately, an excess inventory crisis is more common than you think, and even the best businesses are susceptible to it.
But wait, hold on! Don’t turn away just yet, because we come bearing good news: the excess inventory crisis can be managed quite effectively, and that too with just a few adjustments.
So if this nightmare has been haunting you, scroll down and learn how to grab it by the horns and deal with it.
Contents
- What is excess inventory?
- Causes of Excess Inventory
- Why is Excess Inventory Scary?
- Gaining Control of the Excess Inventory Crisis
- Conclusion
What is Excess Inventory?
First, let’s address the elephant (or in our case, the nightmare) in the room: excess inventory. What is it? As the name suggests, it refers to stock that has not yet been sold, and falls outside the projected consumer demand for that product. So, let’s say you have 10,000 units of pencils sitting in your inventory. The projected consumer demand for the pencils, however, is only 5,000 units. The remaining 5,000 units would therefore be excess inventory.
So, basically, anything that you have in your inventory that goes over the number that you are expected to sell is excess inventory.
Causes of Excess Inventory
There are many causes of excess inventory, and none of them can be classed as “good.” It is usually a result of one disruption or the other, so the fact that you have excess inventory is an indication of the fact that you are going wrong somewhere.
Some main causes include:
1. Using inadequate forecasting methods
When you don’t have adequate forecasting methods available, you are more likely to have excess inventory. It’s simple; if you are unable to gauge the actual demand of a certain product with your consumers, you will be basing your inventory needs on guesswork. Guesswork is never accurate, so you will either be understocking on products, or overstocking on them; the latter leading to an excess inventory crisis.
2. Not considering seasonality
Your inventory needs to coordinate with the shopping seasons, which means that your stock should be aligned with seasonal demands. If you fail to do so, you will miscalculate the amount of products that you need in your inventory, which will lead to excess inventory. So, if you are a business dealing in decorations and you stock up on Christmas decorations in January the same way you do in December, you are obviously inviting a “too much inventory” problem into your warehouse.
3. Disregarding the product life cycle
Not to be too grim, but the harsh reality is that nothing lives forever – including your products. And we’re not talking about their physicality, it has more to do with their demand. Each product has its own life cycle, which starts with market introduction, goes through the growth stage, reaches maturity, and then declines. If the product cycle is not taken into regard in optimising the inventory, then you are more susceptible to the excess inventory crisis.
4. Focusing too much on stock availability
Sometimes, in hopes of providing high service levels, businesses become over-efficient and stock up on products on purpose. This is so that they can have inventory readily available, in case consumer demands change and they have to accommodate a surge in products. The main reason behind this is that for businesses, overstocking seems to be a much better alternative than under stocking, and missing out on products – which is flawed thinking.
5. Supply chain disruption.
Thanks to the Covid-19 pandemic, we know that supply chain disruptions can lead to not one but multiple crises, including the excess inventory problem. During the pandemic, companies scrounged to get their hands of surplus stock for many products, considering no one knew how long it would take things to go back to normal. The surplus stock was a safe-side for businesses – and it is common for businesses to do this during shortages and similar events. However, when this stock becomes excess inventory, it becomes more problematic.
Why is Excess Inventory Scary?
But why are we here? Why are we urging you to stay wary of excess inventory? After all, how bad could it be?
Very bad – that’s the answer. It can be very bad, and absolutely detrimental to your business. According to Retail Week, retailers are still 30% overstocked after the supply chain disruptions caused by Covid-19, and this could very well be the reason they doom. So… the picture, as you can tell, is not that great.
And we get it, because technically, there are many disadvantages to excess inventory.
Firstly, excess inventory can cause your carrying costs to increase to a great extent. Not only do you need money to reverse excess inventory tie ups, but you also need money to accommodate storage costs, service costs, and inventory risk costs.
As if that wasn’t enough, the excess inventory crisis will also lead the quality of your goods to degrade over time. This is because excess stock means low inventory turnover, which means that your stock is not being renewed regularly. While certain classes of products may tolerate this, most goods would just deteriorate over time – which means that the extra stock sitting in your warehouse is rotting away gradually, and this is a huge cause of concern for businesses.
Lastly, excess inventory increases the chance of stock obsolescence. Like mentioned earlier, if you have an excess stock problem, there are chances that the product life cycle is not properly accommodated within your sales strategy. This leads to you keeping products that are bound to become obsolete a lot quicker, and this is truly a nightmare for your profitability.
Gaining Control of the Excess Inventory Crisis
Many of the problems associated with excess retail inventory can be single-handedly solved with the help of the right technology. You will have noticed that the thread that connects all the major causes of excess inventory together is lack of visibility. It is when businesses don’t have the correct level of insight into their operations and inventory management that they are more vulnerable to the threat of excess inventory, and hence, it is visibility that you need to focus on if you are looking to fix this problem.
If you have the desired level of insight and visibility over your products, you will be able to deal with most of the issues that lead to the excess inventory crisis. For example, data that helps you gauge the shift in consumer demands during different seasons will help you forecast your inventory activity better. It will also help you take seasonality into account while determining the required stock levels. Based on this data, you can even prepare for unexpected surges and shortages, without going too hard on your inventory. It will also make the product life cycle a lot clearer for you to understand. Data: one solution to ALL the problems that lead to an excess inventory.
But where does this data come from? We all know that acquiring data in the 21st century is not hard. Yet, acquiring the right data that is not only accessible but also truly useful is hard – especially if you are not already benefiting from advanced inventory management software.
On the other hand, if you have integrated a robust inventory management software into your operations, you will not have to worry about lack of visibility ever again. You will be in full control of your stock levels, and can make sure at regular intervals that they are well-aligned with your consumer demand
This is how you deal with the excess inventory crisis: you use an inventory management software to ensure that you never get to that stage.
Final Take
If you think excess inventory is a nightmare – we don’t only get you, but also agree 100%. But it is a crisis that can be solved with a little bit of effort. In fact, all you have to do is find the right inventory management system for your business – and you are good to go!
An inventory management system will help you get all of this in control, and make sure that you never have to worry about the problem of excess inventory ever again. So, if you are passionate about solving this issue for your business and want to make sure that there are no hurdles to your efficiency, you should be looking to get started with your search for the best inventory management software today.
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