Bottom Line Challenge — What Companies Could Do with Excess

In The World of Supply Chain Management — Opportunities Abound

Dear Reader,

Some companies provide goods in the retail market and through positive opportunistic thinking, sales don’t materialize. When this happens the company could find itself holding items that there is either a strained market for or no market at all.

This could result in a need to market the material in some other way to get it to move from the companies' holdings. So, what happens when a supply chain retail provider procures stock and then is unable to sell it for some reason? As a supply chain manager, you need to know what the result is and how to remedy it to the best of your ability.

I spent most of the past four decades working in supply chain management for the United States Air Force. One of the concerns we nearly always had in our supply chain is what is termed “excess stock”.

It is my understanding through research that most companies have this issue to deal with. There are other terms suitable for this condition as well, such as overstock, stock surplus, excessive stock, or excess inventory.

These terms hold the same or similar definitions. Today I would like to describe what excess stock is, why companies have excess, how to manage it, the advantages, and disadvantages of holding onto it, and how to get rid of it when it is no longer required.

Excess Stock Defined

Excess stock is stock being held that is above and beyond the projected need for which there is a decline in the product life cycle. While the company may still have a demand for the product, a lesser demand may be experienced due to equipment phase-out or replacement.

Normally the causes are poor management of demand forecasting and replenishment (customer and procurement) or not tracking the life-cycle stage of the product.

In the Air Force, excess stock could be caused because there has been a change in mission. Equipment upgrades can also make existing stock no longer applicable to the needs of the company.

Demand stages must be monitored so that stocked items can be used and not procured when there is a large quantity. The intent is for the company to use the stock so that the company does not get stuck holding onto products with little to no demand.

The concern that companies should have includes lost revenue for items being held for sale that there is nearly no market demand for. In other words, company money is tied up in these goods when purchased and while the items sit in storage, known as carrying costs.

Carrying costs include rent or mortgage payments, equipment costs, labor costs, utilities, insurance, and interest that accrues on items not sold.

Excess stock must be monitored closely so the company can sell most of the products while breaking even or perhaps losing a small percentage of profit.

When this is not done at some point in the future the product must be liquidated, and this leads to loss for the company. All is not lost however because there are advantages and disadvantages to having stock available.

Advantages of Excess Stock

· When inventory is available it can be sold

· Reduction of lead time for delivery

· Avoidance of stock out

· Bulk quantity purchases can lead to discounts from suppliers

· Shipping costs can be less than when individual items are procured

Disadvantages of Excess Stock

· Company funds are tied up when they could be used for research and development or marketing — new items can bring additional revenue while large quantities may not.

· Costs associated with the product are not recouped until the product is sold.

·Carrying costs for slow-turning items can result in opportunity cost — products that are not selling take up storage space, when faster moving, higher in-demand products could be stored instead.

· Storage of inventory is yet another cost — warehouse space, utilities and maintenance of storage space, additional storage requirements for some products (refrigeration or other temperature control).

· Smaller quantities stored allow for better space utilization and allow for new products to be brought into the inventory.

· Some products being held in storage degrade or become obsolete.

How to Deal with Excess Stock in Your Inventory (eazystock.com), Daniel Fritsch, December 4 2014

We have looked at the definition of excess stock, the advantages and disadvantages of storing it in the company, and how it should be managed. We have not discussed strategies for how to sell excess inventory. We will not look at that.

10 strategies to sell excess inventory

1. Sell online

This could be done by setting up an online branded store on GoDaddy or Etsy. Amazon and E-Bay are other platforms that could be used to sell items. WordPress has comprehensive ecommerce tools as well.

2. Offer sales

Offering steep discounts lets you attract new customers and sell your overstocked inventory at decent prices. This is better than having unsold excess sitting around. You should use a strategic approach when selling your products. Clearances, Seasonal, and Flash sales are all good ways to sell inventory.

3. Bulk discounts

Offer volume discounts such as BOGO or percentages off the tagged price, this often leads people to buy more than they planned to buy and gets rid of your excess stock.

4. Give products extra exposure

Staging the same product in multiple places in your store gives it more exposure, giving you an opportunity to present products in high-trafficked areas of the store.

5. Product bundling

If one product isn’t moving, try pairing it with one that people can’t stop buying. Sometimes bargain hunters will see a discounted price and make a purchase.

6. Remarketing

• Use new keywords in product titles and descriptions.
• Take new pictures, showing people actually using your product or using it in different contexts.
• Change the product’s placement in your store or online.

7. Liquidation

When all else fails with attempting to get customers to buy, the company can liquidate goods. Companies such as Liquidation.com or BoxFox are B2B bulk marketplaces where companies sell excess goods to other companies. This gets excess stock off your shelves but at a reduced profit.

Some considerations to be cognizant of are:

· Before you put your inventory up for auction, make sure you’ve done your research.

· Know the value of your merchandise and understand what is and is not an acceptable sale price.

· Buyers likely won’t pick up the inventory after liquidation -consider the cost of shipping or delivering inventory to a buyer.

· Finally, liquidating inventory may come with a hit to your brand. Customers are suspicious of businesses that are willing to part with inventory for such steep discounts.

Alternative offloading methods If you can’t turn your inventory into cash flow.

8. Donate for a tax write-off

Incorporated businesses can earn a federal income tax deduction, avoid liquidation complications, clear out storage space, and do some good for the community.

9. Run giveaways

Give the products away to customers to keep them coming back. Run a promotion where every tenth customer to visit the store and make a purchase, walks away with a free product.

Give free products to influencers or thought leaders in your industry. They may be willing to review or simply use your product, giving you some free advertising.

10. Repackage as rewards or incentives

Perishable products generally have a shorter shelf-life, such as flowers, fruit baskets, which make great rewards for customers.

Most suppliers or retailers are going to have to face the battle of excess stock and must deal with it. This needs to be done without taking a financial hit whenever possible. Don’t allow it to drain your business. Be intentional and innovative with how you try to sell that inventory to customers.

10 strategies to sell excess inventory — GoDaddy Blog, Eric Goldschein August 5, 2020

Article Written by Terry M. Day

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