Being well-stocked with raw material and work-in-process products (parts and assemblies that make up the finished goods) is generally a good thing, it means that your business is always prepared to manufacture and sell products and is continuously able to meet the market’s demand. However, if you have inventory that exceeds your projected demand, you’ll end up with excess inventory that can negatively impact your business’ operations and reduce its profit. This is often caused by inaccurate forecasting or purchasing in bulk to take advantage of discounts, but the excess may cost you more than what you saved in the bulk purchase.
The Inevitable Impact
Excess inventory can take up valuable space in your warehouse or storage area that could have otherwise been used for other raw material or finished products. This means that it can stifle operations and production until the excess inventory is dealt with. Additionally, you’ll also be burdened with the storage costs (i.e., utilities and other storage-related expenses). And lastly, you may have to end up disposing of these excess inventories if they expire (especially for perishable raw materials and goods) or if they’re taking up too much space that it’s hurting your business.
Luckily, there are a lot of ways you can deal with excess inventory to minimize its impact on your business:
#1 Return to Supplier
Being able to return your excess inventory to your supplier for either a full or partial refund, store credit, or a different raw material/inventory is arguably the most convenient solution for this particular issue. In the future, it would also help out a lot if you can find and partner with suppliers that are lenient when it comes to returning excess inventory.
#2 Utilize In Other Products (or to Develop New Products)
A brilliant, cost-effective, and profitable way for you to remedy your excess inventory situation is by utilizing the materials in your other products or by developing new products that make use of them. Although this can be quite challenging, it’s undoubtedly the best way for you to take advantage of an otherwise costly and stressful situation.
#3 Inter-Industry Trading
If you can’t find a way to use your excess inventory or return it to the supplier, you can try tapping other industries that utilize the particular material in their production. This is one of the cases wherein your competitors can become your best friend. You can either sell the excess inventory at a lower price or trade it with a different material that you’re in short supply of.
Similar to the previous method, you’ll still be selling your excess at a discount or negotiated price, but through a liquidator or agent that would provide you a platform to sell your excess inventory to industrial surplus buyers. It’s considerably easier than trying to find an industry partner to trade them to, but you’ll probably end up selling it at a much lower price or share a cut with the liquidator or agent.
When it comes to dealing with excess inventory, it’s best to avoid it from happening altogether by learning from your mistakes, improving your forecasting, and further enhancing your business’ inventory management. But it’s still good to know that you have a lot of options available to help you get rid of excess inventory or at least reduce its effects on your business.