This is a representation of overbuying, orders that have been canceled, late deliveries or even projections that are inaccurate. The excess inventory can be as a result of a disruption in the cycle of a product. Disruptions can be caused by technical challenges, shipment delays or other factors like quality of the product. Excess inventory can be defined as those products that have not been sold yet since they are more than the consumer’s demand for the product.
Excess stock calculation
When calculating the excess stock in my shop, I have first to calculate the expected stock and the average number of daily stocks.
The minimum and maximum stock are not relevant in this calculation.
The Average Daily Sales= the Total of All the Monthly Sales/(365 – Days Left in Month)
The target stock = Threshold x Average Daily Sales.
The excess stock = SOH – Target Stock
The longer the holding of excess stock, the more value it loses. When I put the excess stock in shelves, then I notice that the new items no longer have enough space to be displayed on. This limits the products that could have had a higher margin on the shop.
Costs like taxes, insurance, and warehousing also get incurred yet the stock is not making money to pay for them.
The rate of turnover is used as a measurement of how good or bad the business is doing. It helps me compare my business with the other same businesses or even with the average measures.
Carefully reviewing inventory and infrequent periods helps me know the items that are increasing cash flow, reducing it or adding unnecessary costing.
Another way to calculate average inventory is;
Taking the opening inventory and closing inventory and dividing them to arrive with average inventory
Opening inventory= closing inventory
The inventory turnover ratio = Cost of Goods Sold
I pay attention to the number of items left on shelves before ordering a shipment. The number of items should be less or in very high demand. When this is not the case, then my shop is due to experience excess inventory. This could result in losses for the shop, lack of space or even drag back the entire shop.
How to get rid of excess inventory
Re-merchandise or remarket
Sometimes the problem is not the product but how merchandise is being positioned and marketed. I add on my Merchandising efforts to slow-moving goods. Displays are refreshed or rearranged. The attitude of the staff is also refreshed.
This tactic is applicable where remarketing does not work. It involves reducing percentages by a margin. When applying this I can use flash sales which make customers be in a hurry to buy items on discounts. Sometimes I also create an event where a crowd can come to the shop and see the products and purchase them too.
Offering as gifts or incentives
This tactic is what I use in the low-priced items sector. This is where I make a giveaway post on my website for customers to see. This is through asking them to sign up in our email list or giving feedback on social media sites.
Keeping of excess products on the shelves with the hope of them selling at full price could lead to losses that were not foreseen. It is important to focus on quick wins. Goods that move slowly should give space to those that move fast. Calculating the rate of turnover gives you the idea on the goods reducing cash flow and even accounting the unnecessary costs.