Every square foot costs money in rent, electricity, and staffing . Things take up space — the more inventory you have, the more storage you need. This article will reveal ways that overstocking can put undue stress on your business. But many entrepreneurs don’t realize that keeping too much inventory can be just as detrimental to a business. For example, there are stable products such as toilet paper, and others much more uncertain, such as umbrellas – which are sold only during rainy periods.
What are techniques of inventory control?
Businesses can pick any popular inventory control methods such as ABC analysis, Just In Time (JIT), FSN method known as Fast, slow, and non-moving classification, and the Economic order quantity (EOQ).
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- If that’s the case, the next time you send them a purchase order you might request a higher volume than is actually needed for future demand.
- At the same time, staying on top of inventory counts enables you to get a handle on the merchandise you have so you can prevent having too much stock in your store.
- Depending on the products your business sells, you may find that keeping excess inventory on hand isn’t a problem.
- Let’s say you’re a retailer of office products and you buy a desktop stapler for $2.00.
- Inventory liquidators are always on the lookout for surplus stock.
Some additional selling expenses may be added if you use other optional programs to boost your sales of overstock products. These tips and strategies are great ways to keep your cash flow healthy and inventory investment manageable, especially during tough sales periods. People love the extra security of knowing they can bring something back. So if you have a 30 day returns policy, consider extending it to 60 days for a few items as one of your inventory reduction strategies. Having excess inventory and obsolete stock can be very costly for ecommerce retailers. For shop owners and food merchants, understanding price elasticity of demand is important. It helps you maximize profits and know how much you can charge for items without losing customers.
Increase Storage Costs
So long as the goods are not defective or spoiled, you should feel confident selling them at a discounted price . You can start out with something small, like 25% off the item, and then continue to incorporate deeper discounts as you see fit. Dead stock can quickly collect if there’s a miscommunication between your warehouse and management teams. For example, your warehouse might produce excess inventory if management incorrectly communicates the amount of inventory needed to meet demand. Any inventory that doesn’t turn over after a year is generally considered dead stock, and then becomes a liability and a hindrance to your company’s profitability. Fortunately, with advanced solutions for inventory management, brands can better maintain their stock so it doesn’t depreciate and lose its value. When you buy products wholesale, you receive a volume discount.
- For example, if you have a new condo building and are having trouble selling all the units, hold an auction and invite area investors and first-time homebuyers looking for a good deal.
- You can excite customers by giving away discounted items from your excess inventory stash.
- For example, businesses can offer a discount to the customers if they choose to buy the products in bulk.
- In this case, you will have to throw the inventory away and will not be able to make any profit on it.
Cancel or cut back on the orders that don’t presently represent a critical need. This doesn’t mean you should hack away at your orders with a cleaver.
Tips for Successful Inventory Management
Using those two KPIs – Service Rate and Inventory Turnover – gives good visibility of inventory and service levels. Add previous years’ sales forecasts to your inventory calendar to be even more prepared for the future demand. There is no fixed schedule to do it and its normally done for high value or fast-moving products.
But buying too early can be equally painful as inventory sits on the shelf and your cash flow dries up. Or maybe you are an apparel retailer that sold 8,000 blue t-shirts last Summer and only had to mark down 5% of the inventory before the Fall season. But if your forecast for next Summer does not factor in customer tastes shifting from blues to yellows, you will wind up ordering far too much of the wrong product. You end up with less inventory of your top-performing products — which will hurt other KPIs like in-stock percentage and profit per transaction. Today’s retailers spend more money on their inventory than real estate, merchandising, or even labour – making it their largest investment. Roy Daya is a business profitability and growth strategist working with executives and business owners of small and medium businesses in North America and the UK. Seek better supply chain deals in order to reduce cost of goods.
You’ll also have less to worry about if a product is discontinued. If there is a shift in demand for a product, you’ll be able to meet the competition; which means you’ll be able to sell your excess inventory at an ideal price.
Why having surplus inventory is bad for business
Extra inventory can also be used as prizes in in-store and online contests. You can organize a contest in your store or on your social media accounts and choose this excess inventory as a reward to offer to your customers. It will free you from overstocking, drive buzz around your brand, and serve as a marketing campaign for other products.
- Having too much inventory is pretty high up on the list of no-nos for retailers.
- Bundling products is a way of upselling your excess merchandise so that you can make more money while you sell excess inventory.
- The impact of excess and obsolete inventory is felt the greatest when thinking about the amount of cash that is tied up in product that can’t be sold to customers.
- Your customers will be much more willing to buy your store’s clearance products at a discounted price because your signage has already prepared them for the store’s clearance sale.
- If you struggle with balancing warehouse space allocation, then you will want to do some research into ABC classification best practices.
- Retail solutions centralize and automate all retail processes from purchasing to inventory, warehousing, shipping, and more.
Above percentage may vary but the uneven pattern will be the same. You need to identify this pattern and channelize your resources towards the products that fetch most sales. First things first – Identify a dedicated person who can take up the role of an inventory manager.
Shift your high-draw merchandise to another part of the store. Also, check your lighting and signage to make sure you haven’t created barriers to traffic flow with dark, foreboding corners. Another option is to use a separate online marketplace to sell off clearance goods.
Include in Special Sales
If you know when your customer is ready to buy, then you can arrange to have the inventory on hand. You should try to find out as much as you can about your customer – why the customer buys, when the customer buys – so that you can anticipate your customer’s purchasing behavior.. This doesn’t obviate the need for a showroom to display wares, but does give the opportunity to achieve efficiency in just-in-time inventory. So, the easiest way to avoid these problems is to have less inventory on hand, and only have inventory when your customer is ready to buy. Education Explore asset tags designed for educational facilities and university property tracking. Lead times meaning the amount of time between purchase and replenishment. Of course, there’s no need to slash your prices all at once.
Jim Herst is the CEO of Perceptive Selling Initiative, Inc.and helps businesses build sales and accelerate cash flow. It sounds simple, but one of the biggest mistakes companies make is to put off decisions about what to do with their slow-moving inventory. But the inevitable accumulation of inventory could lead to a company paying increased taxes at the year’s end. Reduce replacement costs and integrate seamlessly with durable asset tracking labels. Xiao is the Director of global demand generation at Brightpearl, a leading retail operations platform.
Risk of item not selling
Donating to a charity or another organization is a great way to get rid of the excess inventory and turn it into a good deed. Giving is good, but not everything can be donated to charity. Toys and games products could be given to foster children. If you want to get rid of your excess inventory, you will need to identify potential excess stock first. The excess could be those inventory that never runs out within 90 days or depletes very slowly within 6 months.
Before you go putting everything on sale, take a look at the following ways to strategically manage your overstock without weakening your brand. Are you stuck with inventory that isn’t selling fast enough? Perhaps you took a big bet and discovered some products weren’t as successful as you had hoped. Independent distributors will allow you to maintain ownership while taking a cut of sales, often a 75/25 split. Consignment may be virtual, which means you keep the goods and are responsible for shipping them once a sale is made.
Offer them as freebies or incentives
Throw in slow-selling products at a deep discount with the purchase of a more expensive item to sell 2 different products at once. Try to bundle complementary products together if you do this. Or, bundle multiple units of slow-selling products together to get rid of several of the same item faster. Clearance sales are good for stock that hasn’t sold in 3-6 months. Offer big discounts of 35-70% on slow-moving inventory you want to get rid of on clearance.
- You can set these up anywhere as a great way to clear old stock.
- Obviously, the quicker your merchandise hits the floor, the quicker it will move.
- Solo Stove uses targeted emailing to reach more customers and it’s working.
- Some of these services are places where you can buy as well as sell excess inventory.
- So, the easiest way to avoid these problems is to have less inventory on hand, and only have inventory when your customer is ready to buy.
- With good inventory management, sellers clearly understand how much stock they need to order to make a profit.
Retailers, wholesalers, manufacturers, distributors and others can sell goods via centralized liquidation auctions. For example, Liquidation.com is a B2B bulk marketplace, where companies sell all kinds of excess goods.
Keep in mind, some of these companies like to ‘cherry-pick’ items, and they tend to purchase your inventory at much lower price points. While you won’t see any profits from liquidation, you will free up valuable space and capital. One of the most effective and savvy ways to clear excess inventory is by donating it. By donating inventory, incorporated businesses can earn a federal income tax deduction, avoid liquidation complications, clear out storage space, and do some good for the community. If you can, group certain complementary products together in your store and offer them at a slightly lower price than if they were purchased separately. That way, you can sell slow-moving products without taking a hit on the profits.
The next highest-selling 30% of items will typically generate about 10% of sales. The slowest items account for half the items you stock, but only generate 10% of your sales. Prioritizing the product line is a free fall way within inventory management techniques. https://personal-accounting.org/ Generally, 80% of demand will be generated by 20% of your items. Extra space also means extra costs, and since you have to include those extra costs in your price, you might end up losing to competition with other sellers because your price is too high.
These were four reasons you might be stuck in selling excess inventory. Sometimes, you might lag in the competition you have with other firms operating within your industry. If you do not conduct your SWOT analysis properly, you wouldn’t know much about all those firms that compete with you. They might come up with better quality products and offer them at lower prices without you finding out until it’s too late. You would only realize the gravity of the situation when you’ll sell excess inventory at clearance prices. Therefore, you need to act smart and experiment with your pricing strategies to sell excess inventory. The cost of the inventory is not recouped by the organization until the company sells the inventory or uses it to build customer orders.
You can implement these seven inventory reduction strategies one at a time, but they are all interrelated. This means that you can use the data provided by your demand forecast and advanced analytics to create lifecycle pricing strategies for your products. Sure, you can make small-quantity purchases to restock stores where a product sells better than expected, and mark it down at the stores where it sits unsold. A jewelry retailer, for example, may know that most of their sales are generated by the top 15 ring styles. But giving customers the feeling that they “have a lot to choose from” requires carrying 50 more styles that rarely sell. Merchandise assortment planning defines your customers’ perception of your brand. And it governs how much money you have to spend on inventory.
Think about your store’s layout and flow, and place items in high-traffic areas like the end of aisles. Seasonal endcap displays with flashy, themed decorations draw attention. Generally, if you can’t sell something after 90–120 days, it’s best to just get rid of it and free up the space. For example, if you have 500 baseball caps that you just can’t get rid of, you can find a liquidation company specializing Ten Ways to Deal with Excess Inventory in sporting goods and clothing. They can buy it at a big discount from you and resell it online or wherever they offload their goods. For example, offer a free water bottle when customers spend $50 or more in your store. That way, even though they aren’t paying for the bottle itself, they might be more inclined to spend an extra $10 if they’re already buying $40 worth of stuff from you.
The more inventory you keep and the longer you keep it, the more insurance you pay on it. The more inventory you have on hand, the greater the amount of the business’ capital is tied up.