The excess unprofitable stock is a nightmare to every business owner. It may come with benefits after some time, but it is never a major money-making strategy. Suppose the causes mentioned above results in you are harboring surplus stock that makes you lose money, there is no need to rant about the situation because you can make a profit out of the commodities using proper beneficial means.
- Wholesale Valuing
Wholesale pricing is one of the benefits that come with excess inventory. You can strictly tag wholesale prices on your products. By making that decision, you will have customers buying the goods in large amounts which causes the obsolete number to reduce. By the time you sell all the commodities on wholesale price, you should compensate all or a considerable amount of cash that you spent on purchasing.
- Quality Customer Service
Having surplus material does not mean that no customer will walk in for a purchase. As the market advances, customer expectation rises but not all the clients can move with market shifts. People’s purchasing powers depend on their living standards hence some client will still stick to your outdated products because that is what they can afford at the moment. Well, that is good news because you are ready to sell a commodity any time a customer walks into your store. The benefit is that customers will be back to your warehouse if they need a different product because they have the mentality that your store never lacks what they want. By the time they return, you are secure with new appealing commodities to offer.
How to maximize the potential of your excess inventory
In the same perspective, if you are in the distribution and trading business, you probably understand the hustle that comes with excess inventories. It is one of the worst nightmares of competent logistics personnel, who cringe at the slightest thought of a random performance test. The worst thing about these assessments is that even though they do not have implicational results to the organization, all traders detest this moment. However, its positive side is that it does not affect the costs of the firm in any way creating the impression that with or without excess inventories, the company can still run, but, it is still better to conduct the assessment and be fully aware of the current status of the firm.
When it comes to the production perspective, professionals in this field understand that every tangible commodity has its return rate. It gives the idea that while some will make the typical profit range, others will achieve higher, and the rest will fall short of the expectations. When this happens, those that fall short of the standards of the organization suffer the most and they end up being the main objective of the excess inventories. However, the good news is that you can avoid these incidences by considering some real-life ideas that could surely come in handy during those moments. Here are some tips –
- Consider initiating and pursuing to the latter all the general calculations about any turnover ratio for each inventory to have a rough idea of how the hikes and the deductions affect the numbers
- You can use the idea of Sales System to conduct personal research about the whole operation to comprehend how each cost accrues to the eventual expenses of the organization
- Think about making routine trips to different departments within the store to conduct intense assessments protocols about various fields of logistics.
Types of Excess Inventory
There are three main types of excess inventory. Here are additional details –
- Live Excess Inventory
At the mention of live inventory, the first thing that comes to mind is a type of excess inventory that is under use as we speak. Live inventory has the demerit of increasing the cost of running the whole organization. The implications of heightening the cost of operation of a business are far too influential to pass for ignorance because they end up dismantling the pillar of competitiveness of the business. The dead end to this is diseconomies of scale to the business in all corners.
- Sleeping Excess Inventory
It is as annoying as any other excess inventory only that this one is awaiting action. Trading companies that have been in the business for long are well-aware of the resources it comes with having to meet the requirements of these nightmares.
- Obsolete Excess Inventory
Dead Excess Inventory falls into the category of excess inventory of the previous financial years. If it is not useless, it is simply junk. The types mentioned above of excess inventory affect the organization in more or less the same manner despite their difference in occurrence in the organization.
Disadvantages of Excess Inventory
Excess inventory increases the diseconomies of scale of the firm by continually minimizing its competitive capabilities. Once the business begins investing more on operation costs rather than on investment opportunities, there is no placing an exact limit to the expenses that will accrue to the productivity of the firm. It is definite that whether you are in production or distribution, the impact of excess inventory never stops until the last value balances with all initial entries.
Second to note, excess inventories affect the ability of the business to bounce back from a critical financial position. The reason behind this is that the firm keeps losing its adaptability capabilities by revisiting the past expenses and coming up with the same old routines of solving it. If time and experience is anything to go by, one of the worst enemies of progress is the inability to adapt.
The final demerit of excess inventory is that excess inventory diminishes the overall productivity of the organization. It happens because the business ends up focusing on a whole lot of negative vibe which suppose it had an alternative redirection, is likely that even the general attitude of the firm might change for the better.