Excess Inventory Ecommerce: What is it & How to Improve
Are you drowning in excess inventory and unsure how to turn things around? Excess inventory often becomes a burden that ties up your working capital, impacts business viability, and may even damage your brand’s reputation.
Our insightful guide lays out practical strategies to identify excess inventory, manage it effectively, and prevent overstocking in the future. Read on for expert advice that could transform your ecommerce store's operations - starting today!
Understanding Excess Inventory
Excess inventory refers to a situation where a company holds more inventory than what is needed to meet customer demand.
Definition of excess inventory
Excess inventory, from an ecommerce perspective, refers to inventory that exceeds the immediate or anticipated demand of the business. It represents products or goods that have been purchased or produced but have not been sold within a reasonable timeframe. This can be due to many things like bad weather, slow shipping times, issues with the company that made them, poor advertising or because a trend has ended.
Sometimes a brand will order too much on purpose so they don't run out of goods. But if these items do not sell at all, they become dead stock and are no longer wanted by consumers.
Common causes of excess inventory
There are many things that can lead to too much stock. Here are some:
- Bad weather: Sometimes, bad weather can mess with shipping. This can make too much stock.
- Slow suppliers: If it takes a long time for products to come from your supplier, you can end up with too much stock.
- Problems with suppliers: If your supplier has issues, you might get more stock than you need.
- Poor sales plan: A bad sales plan can cause too much stock.
- Trends change: If people stop liking a trend, the items from that trend become extra stock.
- Making sure there is enough: Some brands have more than they need on purpose. They do this to avoid supply chain problems.
Advantages and Disadvantages of Excess Inventory
Excess inventory can have its benefits, such as providing a safety net during high-demand periods and allowing for bulk purchasing discounts. However, it also comes with drawbacks, including increased holding costs, potential product obsolescence, and the risk of stockouts for more popular items.
Potential benefits of excess inventory
Having extra goods in stock can help a store. It may lead to more sales if shoppers want more than expected. If there are problems getting new goods, the store can still sell from its extra stock.
Buying a lot at once often costs less per item, so stores with lots of inventory might save money. Stocking up before busy times means no lost sales because an item ran out. Extra stock could also be sold cheap during special offers or events for instant cash flow.
Drawbacks of excess inventory
Excess inventory is bad for your business. It takes up a lot of space in the warehouse and costs money to store. Products can go out of date while they sit on the shelf. This makes them hard to sell, turning them into dead stock.
Overstocking can also tie up your cash, leaving you with less money to use elsewhere in your business. It's often due to problems like wrong demand forecasting or supplier challenges.
These mistakes lead to profit losses as excess stock becomes waste over time.
Identifying Excess Inventory
To identify excess inventory, you can calculate the inventory turnover rate, evaluate the health of your inventory, and understand the concept of inventory days on hand.
Calculating inventory turnover rate
The inventory turnover rate is an important metric that helps businesses understand how efficiently they are managing their inventory. To calculate the inventory turnover rate, you need to divide the cost of goods sold by the average inventory value.
A higher turnover rate generally indicates that a company is effectively moving its stock and minimizing excess inventory. On the other hand, a low turnover rate may indicate issues like dead stock or even potential stockouts.
An ideal inventory turnover rate usually falls between 2-4, but this can vary depending on the industry and product type.
Evaluating the health of your inventory
To evaluate the health of your inventory, you can calculate its turnover rate. The turnover rate tells you how quickly your inventory is being sold and replaced. Ideally, your turnover rate should be between 2 and 4.
A rate lower than 2 suggests that you have too much dead stock sitting on your shelves. On the other hand, a rate higher than 4 indicates that there's a risk of running out of stock and disappointing customers.
By monitoring and analyzing your inventory turnover rate, you can make better decisions about managing excess inventory and avoiding stockouts.
Understanding inventory days on hand
Inventory days on hand refers to the number of days it takes for a business to sell its entire inventory. It is an important metric for understanding how efficiently inventory is managed.
To calculate inventory days on hand, divide 365 by the inventory turnover rate. A higher number of inventory days on hand indicates that products are sitting in storage for longer periods, increasing the risk of obsolescence and loss of value.
On the other hand, too few inventory days on hand can lead to stockouts and missed sales opportunities. Ideally, businesses aim for an inventory turnover rate between 2-4, which ensures a healthy balance between having enough stock and avoiding excess waste.
Strategies for Managing Excess Inventory
To manage excess inventory effectively, consider remarketing old products, offering discounted prices, bundling products, organizing giveaways, and donating excess inventory to charity.
Remarking old products
One strategy for managing excess inventory in ecommerce is remarking old products. This involves giving new life to outdated or slow-selling items by finding new ways to market and promote them.
By creating appealing offers, highlighting the unique features of these products, or bundling them with other items, ecommerce brands can attract customers and increase their chances of selling these older products.
Remarketing helps clear out excess inventory and generate revenue while maintaining a positive customer experience.
Offering products at discounted prices
One effective strategy for managing excess inventory in ecommerce is to offer products at discounted prices. By reducing the prices of these products, companies can attract customers who may not have been interested in purchasing them at their original prices.
This helps generate revenue and recoup some of the costs associated with excess inventory. Additionally, it creates a positive customer experience by offering them products at lower prices than they would typically find elsewhere.
Discounting excess inventory also helps prevent waste and disposal costs, as it encourages customers to purchase these items instead of them being discarded or written off as losses.
Bundling products
Bundling products is a strategy for managing excess inventory in ecommerce. By combining low-turnover items with higher-selling products, businesses can increase sales and clear out stock that might otherwise go to waste.
For example, offering a discounted bundle of a slow-moving item with a popular one can incentivize customers to make a purchase. This not only helps reduce the amount of excess inventory but also attracts customers who may have been hesitant to buy the low-selling product on its own.
Bundling products is an effective way to turn surplus stock into revenue and improve overall inventory management in ecommerce businesses.
Organizing giveaways
Organizing giveaways can be an effective strategy for ecommerce brands to manage their excess inventory. By offering products for free through promotional campaigns, brands can increase visibility, generate more sales, and build brand loyalty.
Giveaways provide an opportunity to eliminate excess inventory that might otherwise become "unsellable" dead stock. Additionally, donating excess inventory to well-suited charities not only benefits the community but also offers potential tax benefits for businesses.
Overall, organizing giveaways is a win-win situation as it helps clear out surplus stock while creating a positive impact on both the brand and its customers.
Donating excess products to charity
Donating excess products to charity is a great way to make a positive impact. Not only does it help reduce waste, but it can also improve your brand's reputation. By partnering with nonprofits that align with your brand, you can ensure that the donated items are wanted and needed by those who receive them.
It's important to donate clean, usable products that are easily packaged for distribution. Plus, there may even be tax benefits associated with donating excess inventory. Properly managing excess inventory through donation can have positive social and environmental impacts while also benefiting your business.
Techniques to Avoid Excess Inventory
To avoid excess inventory, businesses can conduct frequent inventory audits, improve demand forecasting practices, place smaller orders for new products, and utilize inventory optimization software.
Conducting frequent inventory audits
Regular inventory audits are important in ecommerce for several reasons. They help to identify excess stock and ensure accurate inventory levels. Here are key points to remember when conducting frequent inventory audits:
- Count your inventory regularly: By physically counting your inventory on a regular basis, you can identify any discrepancies between the physical count and what is recorded in your system.
- Use barcode scanners or RFID technology: These tools can streamline the auditing process by scanning items quickly and accurately, reducing the chances of human error.
- Reconcile inventory records: Compare your physical count with what is recorded in your system to identify any inconsistencies or discrepancies. This will help you pinpoint areas where excess inventory may be present.
- Investigate variances: When you find discrepancies, investigate the reasons behind them. It could be due to theft, inaccurate recording, or other factors that need to be addressed.
- Analyze sales data: Look at historical sales data to determine which products are selling well and which ones are not. This information will guide you in making informed decisions about managing excess inventory.
- Prioritize slow-moving items: Identify products that have been sitting in your warehouse for a long time without selling. Consider implementing strategies like discounts or bundling to move these products faster.
- Adjust reorder quantities: If you consistently find excess stock during audits, it may be necessary to adjust your reorder quantities for certain products. This will help prevent overstocking in the future.
- Review supplier performance: Evaluate the performance of your suppliers to ensure they are delivering orders on time and in the correct quantities. Late shipments or order errors can contribute to excess inventory.
Improving demand forecasting practices
Improving demand forecasting practices is crucial for reducing excess inventory. Accurate forecasting helps retailers better understand customer demand and avoid overstocking or running out of stock.
Retailers can improve demand forecasting by utilizing historical sales data, analyzing market trends, and considering external factors that may impact demand, such as seasonal fluctuations or promotional events.
Implementing inventory optimization software can also assist in optimizing reorder points and order quantities based on real-time data and predictive analytics. By improving demand forecasting practices, retailers can minimize the risk of excess inventory and enhance overall inventory management efficiency.
Placing smaller orders for new products
Placing smaller orders for new products is a helpful strategy to avoid excess inventory and prevent tying up too much money. By ordering fewer products initially, retailers can better manage their inventory levels and avoid ending up with too much unsold stock.
It's important to find the right balance between supply and demand, so placing smaller orders allows for more agility in responding to customer needs. Retailers aim for an inventory turnover rate of 2-4, which means they are efficiently managing their inventory.
If the turnover rate is lower than 2, it could indicate dead stock that cannot be sold. On the other hand, if the turnover rate is higher than 4, there's a risk of running out of stock and not meeting customer demand.
Using inventory optimization software
Inventory optimization software is a valuable tool for businesses looking to improve their inventory management practices. This software helps retailers avoid excess inventory by preventing human errors in ordering and planning processes, ultimately saving money and reducing waste.
With the help of inventory optimization software, retailers can also improve their demand forecasting practices, ensuring that they have the right amount of stock at all times. Additionally, this software allows for regular inventory audits to be conducted more efficiently and accurately.
By using inventory optimization software, retailers can improve their inventory turnover rate and streamline their operations for better overall efficiency.
The Role of Cogsy in Optimizing Your Inventory Levels
Cogsy plays a crucial role in optimizing your inventory levels through real-time visibility, streamlined replenishments and purchase orders, and efficient inventory management.
Provides real-time inventory visibility
Cogsy offers a feature that provides real-time visibility into your inventory. This means that you can see the exact quantity of each product you have in stock at any given moment.
With this information, you can easily keep track of how much inventory you have available and make more informed decisions about when to reorder or restock certain items. By having real-time visibility, you can avoid running out of popular products or overstocking on items that aren't selling well.
This helps improve your overall inventory management and ensures that you always have the right amount of stock on hand to meet customer demand.
Additionally, Cogsy's real-time inventory visibility feature also allows you to identify any potential issues or discrepancies in your inventory. If there are any inaccuracies or discrepancies between what is recorded in your system and what is actually in stock, Cogsy will alert you so that you can address the issue promptly.
This helps prevent costly mistakes like overselling products or misplacing items.
With Cogsy's real-time inventory visibility feature, maintaining accurate and up-to-date records of your inventory becomes much easier and less time-consuming. You no longer need to manually count and update your inventory levels as everything is automatically tracked for you.
This saves both time and effort, allowing you to focus on other important aspects of running your business.
Streamlines replenishments and purchase orders
Cogsy plays a vital role in optimizing inventory levels by streamlining replenishments and purchase orders. With real-time visibility into inventory, businesses can easily track stock levels and anticipate when to reorder products.
This helps prevent stockouts and ensures that customers always have access to the products they want. Cogsy also uses forecasting techniques to predict future demand, allowing for more accurate ordering decisions.
By automating the replenishment process, businesses can save time and reduce the risk of human error in managing their inventory. Overall, Cogsy simplifies inventory management by making it easier to stay on top of replenishments and purchase orders.
Optimizes inventory management
Cogsy plays a crucial role in optimizing inventory management for businesses. With real-time visibility of inventory levels, Cogsy helps businesses effectively track and manage their stock.
By streamlining replenishments and purchase orders, Cogsy ensures that businesses maintain balanced inventory levels without overstocking or experiencing stockouts. Using historical data and demand forecasting techniques, Cogsy improves accuracy in predicting customer demand, thereby reducing the risk of excess inventory or shortages.
With its comprehensive inventory management features, Cogsy provides businesses with the tools they need to optimize their operations and achieve their revenue goals efficiently and sustainably.
Sells products on backorder
When a business sells products on backorder, it means that they accept orders for items that are currently out of stock or unavailable. Customers can place an order for these products, and the business will fulfill the order once the items become available again.
This allows businesses to continue making sales even when they don't have immediate inventory on hand. However, it's important for businesses to effectively communicate with customers about estimated delivery times and keep them updated throughout the process.
By selling products on backorder, businesses can maintain customer satisfaction and still generate revenue while waiting for new stock to arrive.
Key Inventory Management KPIs
Learn about the crucial metrics that will help you optimize your inventory levels and maximize your business's efficiency.
Inventory holding costs
Excess inventory can result in high inventory holding costs, which can significantly impact a company's profitability. Holding costs include expenses such as storage fees, insurance, obsolescence, and the cost of managing inventory.
These costs add up over time and can eat into a company's working capital. By reducing excess inventory and optimizing inventory levels, businesses can minimize holding costs and improve their bottom line.
Implementing efficient inventory management practices and utilizing technology solutions can help companies better control their inventory levels and reduce holding costs.
Stockouts and lead time
Stockouts, or when a retailer runs out of inventory and cannot fulfill customer orders, can be a significant problem for businesses. According to studies, stockouts cost brands around $1 trillion each year.
During the 2020 holiday season alone, stockouts increased by a staggering 360%. These shortages are usually caused by supply chain disruptions and unreliable suppliers. When products aren't available, sales are lost, revenue takes a hit, and customers may turn to competitors.
Lead time is another important factor to consider in inventory management. It refers to the time it takes for an order to be fulfilled from the moment it is placed with the supplier.
Inventory accuracy and shrinkage
Excess inventory can lead to problems with inventory accuracy and an increased risk of shrinkage. When there is too much inventory on hand, it becomes harder to keep track of everything and ensure that the numbers match up.
Inaccurate demand forecasting is often a cause of these issues, as it can result in ordering more stock than necessary. Another factor that contributes to inventory accuracy problems is the lack of regular inventory audits.
Without these audits, discrepancies may go unnoticed for long periods, leading to inaccurate records and an increased chance of theft or loss. To improve inventory accuracy and minimize shrinkage risks, it's important to conduct frequent audits and have systems in place for tracking and reconciling stock levels accurately.
Safety stock and inventory days on hand
Safety stock and inventory days on hand are important metrics in inventory management. Safety stock refers to the extra stock that is held to protect against uncertainties in demand or supply.
It acts as a buffer to prevent stockouts and maintain customer satisfaction. Having sufficient safety stock ensures that you can fulfill customer orders even during unexpected spikes in demand or delays from suppliers.
On the other hand, inventory days on hand measures the average number of days that your inventory is held before being sold. It helps you understand how quickly your inventory is moving and how long it takes for your products to go from sitting on shelves to being sold.
By monitoring this metric, you can identify if you have excessive levels of inventory that may be tying up capital and increasing costs.
Stock availability and dead stock
Stock availability refers to the availability of products for purchase by customers. It is important for retailers to maintain sufficient stock levels to meet customer demand and prevent stockouts.
On the other hand, dead stock refers to inventory that is no longer sellable or has low demand. Dead stock ties up valuable resources and affects business profitability. Retailers should regularly assess their inventory levels and take steps to address dead stock, such as discounting or liquidating it, in order to optimize their inventory management and maximize sales.
Inventory turnover rate and backorder rate
The inventory turnover rate and the backorder rate are crucial key performance indicators (KPIs) for businesses in managing their stock levels. The inventory turnover rate measures how quickly a company is selling and replacing its inventory, providing insights into its efficiency and profitability. A low rate typically indicates overstocking or low sales, while a high rate could signify good sales or understocking. On the other hand, the backorder rate calculates the number of orders that a business cannot fulfill due to insufficient stock. A high backorder rate can lead to customer dissatisfaction and lost sales.
Inventory Turnover RateIt is calculated by dividing the cost of goods sold by the average inventory value. An ideal rate generally falls between 2-4. A rate less than 2 signals the presence of dead stock, whereas a rate higher than 4 indicates a potential risk of stockouts.Backorder RateThis KPI measures the number of orders a company can't meet due to lack of stock. High backorder rates can result in customer dissatisfaction, weakened brand reputation, and loss of revenue. Regular inventory audits and improved demand forecasting can help reduce this rate.
Both these metrics play a significant part in identifying problems in inventory management and devising strategies for improvement. It's essential for businesses to monitor these rates and implement necessary measures to optimize their inventory levels.
Conclusion
In conclusion, excess inventory can be a challenge for ecommerce businesses, but with the right strategies and techniques in place, it can be managed effectively. By identifying and addressing the root causes of excess inventory, such as poor demand forecasting or excessive ordering, businesses can improve their inventory turnover rate and reduce costs associated with holding onto unsold products.
Implementing inventory management software like Cogsy can also provide real-time visibility into inventory levels and streamline replenishment processes. With these measures in place, ecommerce businesses can optimize their inventory levels and improve their overall operations.
Key Takeaways
- Excess inventory refers to having more stock than needed, which can tie up working capital and harm a business.
- Common causes of excess inventory include bad weather, slow suppliers, poor sales planning, and changing trends.
- Advantages of excess inventory include providing a safety net during high-demand periods, while disadvantages include increased holding costs and the risk of product obsolescence.
- To manage excess inventory effectively, businesses can identify it through calculating the inventory turnover rate and evaluating the health of their inventory.
- Strategies for managing excess inventory include remarketing old products, offering discounted prices, bundling products together, organizing giveaways, and donating to charity.
- Techniques to avoid excess inventory involve conducting frequent audits, improving demand forecasting practices, placing smaller orders for new products, and utilizing inventory optimization software.
FAQs
1. What is excess inventory in ecommerce?
Excess inventory in ecommerce means having more products than you can sell. This can raise storage costs and lead to warehouse shortage issues while tying up your business capital.
2. How does excess inventory affect the health of my retail operations?
Excess inventory may cause high operational costs, supply chain slowdowns, and waste if products expire or lose market value over time. It may also limit cash flow and risk your business security.
3. How can I improve my handling of excess inventory?
You could use real-time inventory management and forecasting software for better control over stock levels and order lead times. Optimizing your supply chain and warehouse operations based on trends like demand planning will help too.
4. Can marketing tactics assist with managing excess inventory?
Yes! You could arrange flash sales, bundle sales or giveaways to move stock faster while keeping customers happy by offering discounts or freebies at checkout.
5.Might donating surplus goods make a difference?
Indeed! Inventory donation helps cut down on unnecessary waste while enhancing your brand's impact positively within society.
6.What are some ways to prevent future excess inventory?
Planning ahead through demand increase tracking, weeks of supply formula application and using single-echelon or multi-echelon techniques for optimal stock replenishment can stop build-up from happening again.