Excess stock stored in a warehouse is normally something to avoid when it comes to inventory management as it ties up a significant amount of money which could be used. In fact, studies have estimated the global inventory value to be approximately $8 trillion, with a quarter of that belonging to the US alone. If that amount of inventory was not sold eventually due to either lack of demand or expiration, then a large amount of money would be needlessly lost.
However, stored inventory takes up more than just space. Stored inventory also uses a lot of water and energy in its production. As you can imagine, this accounts for a massive carbon footprint and subsequent negative impact on our environment. Therefore, there is a lot of value to be had in reducing excess inventory.
Accurate predictions of demand
As much as a company tries to reduce the factors they can control around stored and excess inventory, there is another component at play which they cannot control. This is demand volatility which denotes the variations in demand for a product largely due to customer preference.
Consumer demand is difficult to predict and because of this, companies ensure they have excess stock so that they can fulfil orders even when they are unprecedented. Consumers drive design and sales and as such, there is a large amount of uncertainty in inventory control. However, the task is not impossible and can be made significantly easier with the help of inventory management software, which helps to keep track of stock on hand, sales and how the two correlate for more accurate future ordering.
Go back to the drawing board
A great way to reduce excess components is to make them more usable. Businesses can do this by making the components common across many models and designs. In doing so, when excess is left over after the manufacture of one design, they can be incorporated seamlessly in another production line. In doing so, the company does not need to store them or write off the value of them, they are not contributing to the dumped waste and money is saved from not needing to order new parts for the new design. This idea was implemented by Huawei where the engineering teams had to report to the procurement teams who told them which parts had to be included in designs.
Rather than dumping excess stock that is at risk of expiring or becoming obsolete, it can be helpful to simply look at the pricing and consider what may encourage sales. It may be that significant discounts should be offered to consumers or perhaps that items should be grouped together to encourage bulk buying for a bulk discount. Not only is does the business clear excess stock, but they also receive some of its value back rather than simply having to write it off.
Get serious about reducing excess stock
A key method to reducing excess stock is by making it a focus of all levels of the company from senior management all the way down to warehousing and production staff. It can be beneficial to implement a bonus system where accuracy of inventory and ordering is rewarded and encouraged from the grassroots.
These are a few methods to reduce excess inventory which has an impact both finally on the company and detrimentally on the environment. It is high time all industries did something to address this issue and minimise the global inventory impact on our planet.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.