Solving the excess inventory dilemma

by | Jun 18, 2024 | Data Management, Inventory Management, Suppliers

Excess inventory is a common challenge many suppliers face, often arising from unexpected shifts in demand, inaccurate forecasts or sudden changes in market trends. Whether it’s a result of unseasonal weather, supply chain disruptions or unpredictable events like a pandemic, having more stock on hand than you can sell ties up valuable resources and space. This surplus not only impacts your cash flow but also hinders your ability to invest in new opportunities.

When your business is faced with this costly problem, what can you do to turn this potential setback into a strategic advantage? Let’s explore some practical and effective strategies to manage and mitigate the risks of excess inventory, keeping your business agile and profitable.

Tackling excess inventory: 4 strategies for success

Here’s a simple scenario to help us explore the excess inventory dilemma. Imagine you’re an apparel supplier. Due to an unexpectedly mild winter, you find yourself with a significant excess of last season’s ski boots. Here are some practical strategies you can use to address this surplus:

Discount and move

By offering significant discounts to current retailers, you can swiftly move your excess inventory. Strategies like buy one get one (BOGO) deals or special in-store displays can stimulate demand among price-conscious buyers. Offering competitive discounts can also help you stay ahead of competitors that may also be experiencing similar inventory issues. Partnering with retailers to create attractive promotions can boost sales volume and free up valuable storage space, potentially turning your excess inventory into a profitable opportunity.

Bundle and promote

Combining the overstocked item with a more popular product can create a compelling offer. For example, you could bundle the ski boots with trendy winter apparel or accessories. This not only helps clear excess inventory but also adds value for customers. You can also recoup some of the lost margin on their surplus item by bundling it with a higher-margin product.

Store and wait

Sometimes, the best solution is simply to wait. If the demand for the overstocked item isn’t likely to change due to style or functionality trends, storing that item could be a viable option. Holding on to the inventory until next season allows you to preserve profit margins, maintain your brand value and prepare to meet future demand. Plus, storing becomes an even more attractive option if the storage costs are relatively low compared to the potential revenue loss from discounting.

Cut and run

When holding inventory or offering discounts isn’t feasible, liquidation might be necessary. This means selling the excess stock at a reduced price to liquidators or discount stores. Liquidation can free up warehouse space and recover costs, even if it means accepting lower margins.

Other important considerations

  • Assessment is crucial
    It’s not just about solving the current issue but also about preventing it from recurring. Digging into where the problem truly lies can allow you to salvage what you can and make better plans for the future. This includes evaluating current inventory levels, reviewing past sales data and identifying patterns or anomalies.
  • Adapt your strategy to your inventory
    The strategy that best suits your business is often dictated by the type of product sitting in your warehouse. For example, if your surplus is perishable, holding the product until next season isn’t a feasible option. To avoid suffering a complete revenue loss, liquidation or deep discounting will be the better choice.

Make your strategy successful with Analytics

Access to a comprehensive analytics tool can make choosing the best strategy to deal with excess inventory infinitely easier. By leveraging analytics, you can make data-fueled decisions to manage your inventory surplus effectively and profitably.

  • Discount it: By analyzing historical data, analytics can identify which promotions have been successful in the past, down to the item and location level. This allows you to craft data-driven discount strategies that resonate with your retail partners and customers.
  • Bundle it: Analytics lets you pinpoint the most promising locations for bundled sales and build promotional campaigns to drive store traffic. This targeted approach increases the likelihood of successful sales and customer engagement.
  • Hold it: By monitoring market trends and sales patterns, analytics allow you to determine the optimal time to reintroduce the inventory. When demand picks up again, you can act swiftly and confidently with inventory already on hand to fill orders.
  • Liquidate it: A robust analytics solution can compare multiple KPIs side by side, such as margin, sell-through rates, weeks of supply and total retail sales volume. This ensures you don’t hastily liquidate items that could still sell at full or discounted pricing, maximizing your recovery on unsold goods.

Dealing with excess inventory requires a strategic approach tailored to your business needs. With SPS Analytics, you gain a valuable tool to make informed decisions, optimize inventory management and mitigate future risks. Interested in learning more? Contact our team or visit our website today.

Erin Hart
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