Your business is all but guaranteed to end up with excess inventory at some point. The only exceptions are purely digital companies and those that only drop-ship. And even they may overstock on items used internally!
Why Do You Have Excess Stock?
Obviously, excess stock isn’t something you set out to have. You want enough stock for every customer who wants to buy, plus enough stock to handle shrinkage.
Getting that right is part science, part art form, and part prediction. If your forecasting is too optimistic, you will end up with excess inventory. If your marketplace shifts, that can also lead to overstocking.
Excess stock becomes excess when it’s not just a case of holding it for longer before it sells. Instead, it’s excess stock when you have to accept that you won’t be able to recover all of your costs on that stock.
Is There a Difference Between Excess Stock and Dead Stock?
Effectively, there’s no difference between excess and dead stock. They’re just different terms for the same thing.
Is Slow-Moving Stock Excess Stock?
It’s harder to tell whether slow inventory is dead or not. Some businesses use a simple rule of thumb – it’s stale inventory if it hasn’t sold in the first 90 days on shop floor, and dead inventory after three months have passed.
Of course, if you deal exclusively in high-end electronics, you may need to draw the line further away. Fashion stores might need to reduce the limit – 90 days is a full season!
Stale inventory can still include excess stock. It might be that you’ll sell some of that stock, but there’s enough that you know you won’t sell it all, even with FIFO (first in, first out) inventory rules in effect.
Disposing of Excess Inventory
Not all methods are suitable for all occasions. But, to reduce your costs bound up in owning and holding excess inventory, consider one or more of these.
Return for Refund/Credit
Depending on how long you’ve held the stock (and your supplier) this may not be an option. But if your supplier allows you to return non-perishable stock at a reasonable discount, you can free up warehouse space and recover some of the money tied up in your excess.
Trade with Competitors
Your relationship with your competition doesn’t have to be all aggressive, all the time. You might be able to make a good deal, either for cash or in trade for something you’re low on. This can also build goodwill and relationships. And those are two forms of value that don’t cost as much to maintain.
Big sales in your shop window – or discount coupon codes on your store – allow you to turn excess stock into loss-leaders. You could advertise the coupons on key landing pages in your site, or pass them out through your mailing list and/or social media.
While this option is most useful to manufacturers, it’s very useful to some of them. How much of your excess raw material would be useful to another product line? You might need to absorb some cost in reworking it. But that cost might still be cheaper than disposing of the stock altogether.
Some retailers might be able to do a similar thing by bundling stock. Excess stock you’d otherwise write off could be a bonus for some customers.
Turn to Independent Distributors
Also known as consigning the product, this effectively involves letting a wholesaler sell the product for you for a split of sales. Physical consignment sees the stock leave your storage. Virtual consignment sees you retain the stock and responsibility for shipping.
However, you’re now effectively selling through someone else’s channels, which may have more reach or a greater marketing budget.
A liquidator will be able to offer you a price for your excess stock. That price will be based on their own costs and what they expect to be able to sell it for, so it’s often very low. However, compare it to the costs to continue to store your excess.
Scrap the Stock
This is basically what a liquidator would be doing. Your stock almost certainly has some value for the material it’s made of. Scrap dealers may be willing to collect, if there’s enough value in the collection. You don’t have the liquidator’s advantage in their contacts list, though.
Donate Excess Stock
Are there any charities or other non-profit organisations that could benefit from your excess? You might even be able to get some tax benefits for charitable donations. You can almost certainly get some positive publicity for doing it.
Excess Inventory Challenges
Any time you have excess inventory to dispose of, you must balance further costs (including time) against potential returns.
For this reason, excess should be monitored year round as part of your standard stock control. Waiting to deal with the problem will always mean more costs.