You will likely have heard about the pitfalls of excess inventory. People will warn you not to overstock due to the array of holding costs you have to pay on inventory – and rightly so. Warehouse rent, heating and ventilation, security, spoilage, and financing costs are just some of the costs you will want to avoid as a business owner. What these people may forget to mention is that every business will likely be overstocked at some point in time. No demand forecast is 100% accurate, and while overstocking may be unpalatable, being understocked could lead to disappointed customers, which could have far more serious repercussions than overpaying on holding costs.
When you are in fact overstocked, you could use the situation as a business opportunity. Let’s take a look at how you could achieve this.
Identify excess inventory
Before you can go about making the most of your excess stock, you must first identify it as excess in the first place. Simply having more inventory than you are regularly selling is a good thing: it’s healthy to have safety stock in case of a spike in demand or unexpected supply problem. Further, you may be able to solve an excess amount of stock in one location internally, for example by moving it to a warehouse in an area where demand is more variable, and hence more safety stock is needed.
On the other hand, there comes a point where you are clearly overstocked and something needs to be done to reduce holding costs. A good inventory software software can provide the data collection and analysis of inventory levels and costs to help you work out where this point is. Once you have found this point, the options below are just some ideas on how to best utilise the extra inventory you have.
Explore all selling options
Generally the best option for any inventory is to sell it as soon as possible, but there are many ways of doing so aside from selling to your regular customer base. If you usually sell your merchandise in a physical store, look at selling online. Explore marketing to new customers, perhaps to wholesalers who are looking to buy in bulk, rather than selling to the end consumer. Alternatively, there are some specialist inventory liquidator businesses who buy excess inventory, although be warned this is usually for a discount.
Another idea is to rethink how you are selling your stock. It may be possible to combine an item which you have too much of with another that is in high demand. This could either be as a mandatory package deal or else at a discounted price when both are purchased together. Such offers are often popular with customers, as they perceive this as getting more value for money.
Using promotions is a classic way of utilising excess inventory. You could offer pricing offers, like buy-one-get-one-free or other such arrangements. You could have sales or ‘members only’ days where items are offered at steep discounts. You could also give the inventory away as gifts to entice people to your brand, or give it away as a donation which will boost your business’ public image.
The discussion above in no way advocates that excess stock is a good thing. It isn’t. Holding costs are expensive and can do serious harm to your bottom line. However, being overstocked isn’t the end of the world. Thinking critically about who you can sell your product to, how you can sell it, and exploring different types of promotions, can allow you to quickly reduce your inventory to levels you are comfortable with, without making your business take a hit on holding costs and written-off products.