Many argue that there is no such thing as obsolete inventory. For them, these products are going to sell one day anyway. Why call it excess and obsolete when it is bidding its time? Maybe in five years, people are going to realize the potential of the products you have in the warehouse and buy them. This is the biggest mistake any business can make. Slow-moving inventory takes up space, time, and resources. They pin you down and takes much of your ability to run the business seamlessly.
Ask your warehouse employees about your excess inventory. It’s taking up prime bin locations. They have to check on it from time to time, too. That’s space, time, and energy that could be spent on more important business operations. Most companies are, in fact, busy looking for ways to get rid of excess inventory. They are either returning it to the suppliers or selling it for low. Either way, excess and obsolete inventory never help a business.
The question here is not how to get rid of obsolete inventory. It’s about how to avoid it in the first place. A reverse logistics consulting company might help you find a place for obsolete inventory, but the aim of your business should be not to produce excess inventory. Here’s how you can do it.
Identify the Causes of Excess Inventory
There are many reasons why businesses have excess stocks of products in their warehouses. The two biggest reasons are inaccurate forecasting of demand and poor quality. The first one refers to overconfidence. Why did you have to order 100 pieces of the same item when there’s another shop in the corner selling it for the same price? You have to take into account the competition for your market. If you are targeting to supply a specific location, make sure no one else is selling the same product as you.
The incorrect forecast of customer demand usually pushes business managers to order more stock than it can sell. That leaves you with obsolete inventory. These are the excess items you haven’t been able to sell after the demand has been fulfilled. And no, preparing for the next wave of demand doesn’t mean you have to waste economics in housing the excess inventory.
Poor quality and design of the product is the second reason. While there could be initial demand for these products, that will fall flat once the first batch of reviews come streaming in. When other potential customers found out that the first batch of buyers was dissatisfied with the products, that will discourage them from buying the items. You will then get stuck with items you don’t need.
This usually happens when your business is chasing another business. For example, Microsoft came up with Zune in 2006 to compete with Apple’s iPod. While Zune isn’t a bad product, it is chasing a product that has been well-embraced by the market. It is hard to compete with that. Instead of coming up with its own technology, it followed the same design and feature as the iPod.
Avoiding Obsolete Inventory Like a Plague
Once you understand the two reasons mentioned above, it is time for you to make a plan to avoid stocking up items that you cannot sell. First, you have to study your market well. Make sure you know how much demand you are expecting. Take into consideration the competitions you have for the same market. You can do market research before ordering from your suppliers.
Second, you have to make sure your consumers will respond positively to the quality of your products. Consumers are more informed now than ever before. This means that you have to impress them down to the very last detail. Do not allow your suppliers to sell you low-quality and substandard products. Your consumers are expecting the best from your store. Answer that call with gusto.
If you do get stuck with obsolete inventory, you need to learn how to get rid of it, too. You can write it off as a loss just like what Microsoft did with Zune. You can also donate obsolete inventory and claim them as tax deductions. Remarketing the items also works well because you can reignite your market’s interest in them. Finally, selling them at a discount will get you back your money and get rid of this excess inventory.
Anything that makes you waste time and money is a liability for your business. Getting rid of excess inventory means focusing on the more important aspects of your business. It also shows concise and proactive decision-making.
Meta title: How to Do It: Avoiding Excess and Obsolete Inventory
Meta desc: It is one thing to have the items on hand and ready to ship. It is another thing entirely to have an excess of those items on hand and no customers asking for them. Preventing excess and obsolete inventory is one of the most important components of running a business.
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