How can we handle excessive Inventory?

Mar 8

There are many issues that manufacturers face when they have too much inventory in their warehouses. Excess inventory in your warehouse can be a huge issue for businesses. A recent study found that 15% of all goods are either returned or never sold in the first place, with a big part of these commodities ending up back at the producer. Assuming your warehouse is appropriately designed to accommodate your regular stock requirements. A 15% product overage will soon eat into your available space, making it more difficult to optimize your storage. This strategy will not work in today's environment of constrained margins and enhanced warehouse efficiency.

Why is there an excess inventory?

Inventory that has accumulated due to disruptions in the production process is known as excess inventory. These variables can be classified into three categories:

50% Delays in shipping. Delays are caused by factors such as long processing times, high order volume, and international restrictions.
35% Technical problems. Issues resulting from poor system integration, order processing issues, EDI issues, and a lack of business visibility.
15% Other criteria. Such as return policies or quality criteria.

Additionally, consumer behavior and market movements can contribute significantly to the creation of excess inventory. Excess inventory can arise in the retail industry or in the home goods industry as soon as seasonal trends shift. Excess inventory is frequently produced by a miscalculation of client demand in industries where consumers make a wide variety of purchases. Demand is difficult to estimate in such cases, which results in corporations over-stocking slower-moving items.

That's why we have seen an increase in demand for Amazon inventory management software for forecasting purposes. Also, Walmart, eBay, and many other popular retail sellers are looking for inventory forecasting software products to deal with excess inventory problems.

How do you deal with Excess inventory?

Manufacturers and wholesalers frequently sell too much Inventory on hand via third-party auctions or discount vendors using inventory forecasting software. However, this is not a long-term, sustainable option, as it reduces your profits and requires time to bargain effectively with resellers. Additionally, if you do not resolve your excess inventory issue permanently, you will spend timekeeping and dumping your surplus throughout the year.

Having an excessive amount of inventory on hand can be reduced by following the methods outlined below.

Eliminate obsolete inventory

Prior to optimizing and streamlining your warehouse, you'll need to clean out the waste. As with clearing your home closets before reorganizing them, completing this step creates the space necessary for smart planning.

Contact resellers in your area to sell your excess, inquire of colleague manufacturers what they do with their excess, or employ a consultant to assist you. Take a big breath and pat yourself on the back when you're finished. That was the most difficult element of the entire procedure.

Real-time tracking of your productive inventory

After you've decluttered your room, you'll need to begin gathering data on how you utilize the remaining space. It is one of the most important steps you can take to resolve your excess inventory issue for good. The use of real-time data allows you to build a pick, pack, and ship process that adapts to modern consumer demands in an agile manner.

Evaluate your warehouse

After determining your current requirements, you may begin planning for overall optimization. This may need you to rearrange your shelves, methods, equipment, and technologies. To complete your assessment, you can either conduct your own study or, if you're pressed for time, consult the experts.

Eliminate or minimize inventory errors

Inventory pileups are frequently caused by inaccuracies in counting and restocking operations, which are frequently the result of human mistakes. Today's increased holiday manufacturing and distribution requirements have placed an additional burden on workers during these important periods, and it's becoming increasingly difficult to maintain a year-round, adequately educated staff. When your employees are not properly taught, you're likely to see an increase in erroneous orders. You will also see more time spent wandering through the warehouse and an increase in damaged goods.

Fortunately, there is a solution for time-pressed distribution operations to circumvent these obstacles through the employment of:

Voice-activated picking software — speeds up the picking process
Verification through barcode – increases order accuracy
Real-time warehouse tracking — guarantees that all employees are held accountable at all times
Enhance the efficiency of your production process

After you've established your real-time inventory flow and minimized the chance of human mistakes in your warehouse, you may wish to adjust your production process. Modern technical advancements have increased the precision of pull-based systems—such as make-to-order—and a growing number of businesses, large and small, are utilizing this lean manufacturing technique to eliminate excess inventory in their warehouses.

Though some manufacturers may choose to implement a comprehensive Just-in-Time (JIT) system. in such a system, orders activate everything from raw material ordering to task planning automatically. Other firms may simply choose to lower their inventory stock area by combining make-to-stock and make-to-order manufacturing processes.

What Are the Negative Consequences of Excess Inventory?

Excess inventory creates a slew of complications that result in wasted resources, storage problems, and additional expenses. However, there are two significant downsides to surplus inventory:

Excess inventory creates a cash flow bottleneck.

A business acquires inventory with the intent of reselling it profitably, converting it to cash, which can then be utilized to cover the business's operating costs. Excess inventory reduces this cash flow by retaining the funds in the form of commodities and preventing them from being used elsewhere.

Excess inventory results in revenue loss.

Excess goods depreciate in value over time as they are maintained as stock and as the wholesale demand for that particular product declines, and it takes up "shelf space" that could be used for a newer, more profitable product. Additionally, the costs associated with storing surplus inventory, such as warehouse expenses, insurance, and taxes, diminish profits. Excess expiry-dated products represent an even greater financial loss because they are no longer usable after the expiration date and must be discarded completely with no financial benefit.

Conclusion

Without a doubt, excess inventory has a significant negative impact on any type of organization. Apart from the impact on profitability, inventory volatility has an unmistakable impact on forecasting. Ascertain that you are leveraging important KPIs to monitor the health of your inventory and ordering only the minimum amount of stock required.

By automating your inventory management operations with software, you can free up time for in-depth study of your organization.