Especially in times of market uncertainty, tying up capital in excess inventory could spell disaster for your business. Changing customer demands and supply chain uncertainty are contributing to a stock crisis for many top retailers. Traditional forecasting and short-term planning may not be enough to ensure the stability of your supply chain. How can your organization avoid the risks associated with carrying excess stock?
Although we are still dealing with the profound effects of the pandemic, consumers are no longer focused on the “lockdown lifestyle.” The surge in demand for home improvement furnishings and personal items has taken a sharp turn as life resumes outside the home. Articles trending just months ago no longer hold their appeal in a time of uncertainty and inflation. Deliveries from abroad are far less reliable and extended transit times, shipping costs, and labor shortages continue to disrupt supply chains. Some businesses are stuck with excess inventory ordered from manufacturers months ago.
The excess inventory problem solved with Microsoft Dynamics ERP
Excess inventory refers to products ordered anticipating customer demand that has since dried up. It causes a real problem contributing to lower profits and restricted cash flow. And the main reason for excess stock is the inability to accurately monitor, measure, and predict the supply chain.
Including channel, customer, and region in the planning process is essential. For example, at the start of the pandemic, beer manufacturers saw a massive shift as demand moved from bars and restaurants to liquor store and grocery sales. Businesses that identified this shift quickly were better able to avoid shortages or overstock.
A lack of visibility limits useful data and hampers strategic planning. Without accurate data, you risk over-forecasting, over-ordering, and being stuck with the wrong items. Excess inventory with a short shelf-life and diminishing demand spells trouble for your bottom line. A further complicating factor is working with unreliable suppliers with fluctuating lead times. Too many items may arrive at the wrong time when the demand for them has subsided.
Hidden costs of excess inventory
Excess inventory carries with it a broad range of problems. And each of these problems involves a cost to your business. Costs can include:
Warehouse space for storing excess items
Energy costs to preserve perishable items
Insurance costs to cover damage and loss
Loss of value for obsolete items
Capital tied up in inventory costs rather than reinvested
Additional employee resources for managing the inventory
How to prevent excess inventory with the Netstock Dynamics EPR Solution
Of course, you want to prevent overstocking. But if you are already stuck with some items, what can you do? Here are five suggestions for managing excess inventory.
Plan ahead: Use a demand planning solution with effective classification, improved forecasting, safety stock, and ordering modules to forecast accurately and place the best possible order in the first place.
Opt for discounts: Offer bulk discounts or markdowns. Discounting can be painful, but consider the cost of keeping the items. Strategic data analysis can help pinpoint the best discount price.
Donate: Donations can earn you a tax deduction.
Reconsider your sales and marketing strategy: Review your tactics and develop a new game plan for inventory optimization.
Perform a thorough analysis: Examine your approach and processes. Determine why you have excess inventory and what ordering changes you can make.
Download our eBook and learn five key steps to reduce excess inventory and enable smarter inventory decisions for your business.
Working with outdated tools to make critical inventory decisions won’t help reduce inventory. Unlock your supply chain data with Netstock and Microsoft Dynamics. Netstock extracts and analyzes the data in your Microsoft Dynamics ERP, creating prescriptive recommendations to make intelligent supply chain planning decisions for your business. Turn your ERP data into inventory intelligence.
You need to adapt quickly to market changes. That requires the right planning tools to forecast accurately and respond to customer demand. Be proactive rather than reactive. If not, your business will end up with a large amount of working capital tied up in stock for which there is no demand.
Increase your inventory visibility with powerful insights and trusted recommendations to balance your inventory investment and allocate resources to your high-performing, profitable products. Contact our experts at Netstock for a personalized demo of our powerfully simple inventory optimization suite.
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