Excess inventory is a nightmare that goes beyond diminishing shelf space or back room storage. Some industries could up end up wasting as much as $86 million simply by constantly having one week’s worth of inventory left unsold.
But at as tempting as it may be to push a panic button, the real problems of excess inventory are far more complicated. Forecasts and trends can be unpredictable, no matter the market. A competitor might suddenly appear with newer methods in production and delivery that steals demand, or it could simply be self created- We made too much of the wrong product because it was cheaper and easier to manufacture and drove our manufacturing utilisation kpi’s up without any consideration for the rest of the supply chain who now has to store, distribute and sell products that our consumers don’t want. Further, our supply chains are long and complex and so it can take some time to turn off the tap when stock piling as the result of slow moving inventory is building.
It does make sense to try to work out the root cause but that’s not always possible and in the meantime, it could take you weeks, months or even years to come up with a solid solution. Fortunately, there are still some emergency responses you can make to ensure that excess inventory doesn’t come at too steep a price for your bottom line.
- Stop stocking more.
Logistics aside, it’s common sense. As the adage goes, insanity is continuing to do the same thing but expecting different results. The first thing to do when a product starts to slow is to cease stockpiling it as soon as possible.
Today’s SCM analytics tools can easily help identify product slowness. However, instead of worrying about the inventory numbers of the slow product, use those numbers to indicate how much you can sell in other clever inventory reduction strategies.
- The tried-and-true clearance sale.
You might think that anyone can see through a clearance sale and that it’s a rather dated tactic. That doesn’t make it any less effective in reducing the cost of holding inventory that would otherwise not be sold. Think of end of year sales across all industries.
There are a number of tactics you can use to entice buyers to buy these products:
- There are of course some very successful chains operating across many industries that specialise in end of line and end of season stock: Locate these companies and offer them your stock. These companies will use direct on line as well as bricks and mortar options.
You could also sell these products yourself by::
- Mixing them up with some inventory that sells slightly faster than the slow product.
- Use analytics to understand a slow product’s ideal buyer and focus the sale on them.
- Know your local bargain hunters and how they might benefit from the slow product.
- Is there someone that needs this product and can use it and who will pay full price for it? Who is this buyer and how can you best access them?
Take it as a chance to get creative with your marketers and also as an opportunity to understand the people you are selling to.
- Offer it as part of a bundle.
If you are seeing signs of multiple slowing products, another way you can avert disaster is by bundling them all up. Offer each product at a discount and sell them the whole thing as a package.
However, this has to be done strategically. If you are a grocery chain for example, you might want separate bundles aimed at certain types of shoppers (e.g. snack bundles, house cleaning bundles etc).
It can also help if you show just how well one product can be used with another. You see these things in product endorsement cooking videos where X brand of canned food is used with Y brand of cooking oil.
- Use innovative means to use a product to drive more business.
Giveaways are one simple example. At first glance, it sounds like a desperate move. But with the right marketing techniques, giving a slow product for free can still be used to market the rest of your business and boost your bottom line a little more.
The same goes for when you decide to take the unused inventory and carefully repurpose it in other areas of your chain to generate more value. For example, if you are in the machine business and have some unsold components, there is still the possibility of using those components for a new product.
Of course, the key is always to be strategic and having an eye towards making up for the loss while also reducing the cost of simply carrying that inventory.
We are certainly past the age where the cost of surplus is a given (and for some, even a boon). Now, we live in an age where you can’t afford to misspend even a single week of resources in slow inventory. With more companies being agile and responsive to demand, consider deploying some of the above tactics without delay!
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