In this guide, you’ll learn what causes excess stock on your shelves, how to avoid it and the best ways to manage it when it happens.
What is excess stock?
Excess stock is an inventory surplus you haven’t sold and aren’t expecting to sell soon. Stock that sits for too long in your warehouse can depreciate and cost your business money. When it’s clear that it won't ever sell, it becomes dead stock. Dead stock increases warehouse costs, decreases shelf space and results in lost revenue.
What are the causes of excess stock?
The causes of excess stock include:
Ineffective product lifecycle management
Ineffective product lifecycle management is when you don’t replace older items in time. This can lead to having excess stock on your shelves that people no longer want to buy.
Inadequate demand forecasting
Inadequate demand forecasting may mean you overestimate demand for a certain item. It can leave you with more stock than you can sell at the price you want.
Supply chain issues
Supply chain issues can cause delays in production and distribution, resulting in excess stock for manufacturers. Retailers and wholesalers may also order safety stock in response to a known supply chain issue. If that doesn’t sell, it can become excess stock.
Poor purchasing decisions
Poor purchasing decisions are a common cause of excess stock. When you understand what your customer wants and your stock replenishment requirements, you can buy only the stock you need.
Poor inventory management
Poor inventory management can lead to ordering too much stock. This can be caused by not having a clear view of your stock levels, miscalculating sales performances or inefficiently planning for the end of a product’s lifecycle.
How does excess stock impact businesses?
Excess stock can have a significant financial impact on your business. Storing too much inventory increases carrying costs and ties up your cash. This may lead to cash flow problems, impact your ability to cover your operating expenses, hold back your growth and eat away at your profit margins.
Strategies to manage excess stock
There are strategies you can adopt to manage your excess stock. These include:
Discount excess inventory
Discounting excess inventory may convince customers to buy your surplus stock, instead of in-demand, full-priced items.
Automate inventory management
Automating inventory management using modern cloud software can ensure you order the right quantities to meet demand without accumulating excess stock.
Tip: Use inventory management software from MYOB to see what’s selling and what’s not. Then set an automatic re-order point so you’re not accumulating excess stock that won’t sell. Generate reports so you get the insights you need to make informed decisions on which items to stock.
Bundle products together
Bundling products together can help move your excess stock. You can discount an in-demand product if bought with an overstocked item, for example.
Remarket inventory
Remarketing inventory involves advertising or promoting stock to make it more appealing to customers. For example, if you have a brick-and-mortar store, this might involve moving excess stock to a more prominent position. Online, you might consider adding fresh photos or a new website placement.
Loyalty programs
Loyalty programs can be used to encourage returning customers to buy your excess stock. You can offer them extra discounts, gifts, points or other rewards when they do so.
Donate stock
Donating stock to a charity or other cause can help you offload items and free up space before the excess stock costs you too much. Doing so can also help those in need and be a PR boost for your business.
Stock liquidation
Stock liquidation is the sale of unwanted inventory to another company at a hefty discount. Stock liquidation is different to liquidating a company — you can sell off your excess stock and stay up and running.
How to avoid excess stock
Knowing how to avoid excess stock will benefit your business and your customers. You’ll save costs and inventory space, and your customers will benefit from you having the items they want in stock. Strategies to avoid excess stock include:
Regular inventory analysis
Regular inventory analysis can help you avoid excess stock. ABC analysis, for example, lets you organise your stock based on its importance. This means you can concentrate your resources on your most profitable or in-demand items.
Adopt Just-in-Time (JIT) Inventory
Adopting Just-In-Time (JIT) inventory management means you order stock based on customer orders, reducing warehouse costs and the chance of excess stock. It does come with risks — any supply delays may mean you miss out on a sale.
Account for seasonality
You should account for seasonality to reduce your risk of excess stock. Financial statement analysis can give you an insight into seasonal trends that affect your business.
Automate inventory management
Automating inventory management can help reduce errors caused by manually managing stock. Inventory management software tracks your inventory and helps you make smarter restocking decisions.
Tip: MYOB’s inventory management software can help you avoid carrying excess stock.
With MYOB, you can forecast demand based on sales data from previous periods and track sales to see how quickly your stock is moving. When stock is running low, you can automatically fill orders, but adjust quantities before sending as needed for stock control.
Implement more accurate demand forecasting
Implementing more accurate demand forecasting can help you predict how much stock you’ll need to keep customers happy, without overstocking your shelves. Adopting the right sales forecast method can help optimise your inventory levels.
Excess stock FAQs
What is the best method to reduce excess stock?
The best method to reduce excess stock is one that allows you to make some money from it. Sales methods include discounts, bundle packages and remarketing activities.
What is the difference between excess stock and dead stock?
The difference between excess stock and dead stock is whether the products can still be sold. Dead stock has been on shelves long enough that it’s obsolete and won’t sell. Excess stock exceeds customer demand and risks becoming dead stock if it isn’t offloaded.
Is surplus inventory the same as excess stock?
Surplus inventory can be the same as excess stock, but it also includes safety stock. Safety stock is a planned backup of inventory that’s expected to sell well.
Clear your shelves of excess stock
Avoiding excess stock is crucial to your business’s financial health, as unsold inventory can increase warehouse costs and lock up your cash flow. While you may be able to manage the problem with discounts and customer rewards, the best idea is to avoid overstocking in the first place. This is best done with automated inventory systems, accurate forecasting and regular inventory analysis.
You don’t need a crystal ball to get on top of your inventory, though. With MYOB’s inventory management software, you can track what your customers are buying and improve stock management to keep items selling. Try it today.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.