Overstock inventory – today’s $1 trillion problem

You’ve probably dealt with excess inventory in the past if you’re anything like most businesses. You might have been looking to add an item to your catalogue, or maybe you wanted to restock a favorite item. But you ran into a problem. Your warehouse is a storage area that has too many products. This means you are losing money and space. Overstocking is a problem in eCommerce. Inventory management can be difficult and even the most powerful brands have trouble managing excess inventory. We have listed the top causes of overstocking and steps you can take prevent this from happening.

What is Overstock Inventory?

Inventory that isn’t being sold in a reasonable time frame is called “overstock inventory” (also known as “excess stock” and “surplus stock”. They are, in other words, excellent products that can be bought. They aren’t getting enough interest. Instead of bringing in revenue they occupy valuable warehouse space and eat into your profits.

Six common reasons for overstocking

Businesses can have excess inventory for many reasons. These are just a few of the reasons businesses end up with excess inventory.

01. Forecasting and reports that are not adequate

Forecasting and tracking inventory is difficult due to eCommerce’s volatility. Brick-and-mortar shops typically have a return rates of 8.89%. However, online orders typically get returned at 30%. Moreover, sudden fluctuations in demand can be caused by viral trends and seasonality. You must also understand the shopping habits and preferences of each channel if you are a multichannel seller. Additionally, inventory and orders must be kept in sync. Poor demand planning could be caused by a lack of centralization, tools, data, or processes.

02. To avoid stockouts, overcompensate

It’s not a good idea to display “out of stock” on your product pages. It can deter a sale and could also leave a bad impression to consumers. Plus, you may lose your hard-earned ranking on any marketplaces (like Amazon). Marketplaces are concerned about the user experience and won’t be able to approve merchants who are constantly out of stock. You may decide to buy tons of additional inventory to offset the possibility of a stockout. This is a temptation that can be particularly strong when supply chains are weak or you’re in a busy selling season. This strategy is dangerous because if the items don’t sell you have an overstocking problem.

03. Inefficient inventory management

You are in danger if you don’t have a system to track inventory movements. Although you may be able to count stock manually in the beginning of your online business, it is not necessary for every business to have an automated system that tracks inventory in real-time. Inventory management can involve many things, from reconciling stock levels across all sales channels to calculating your margins. All of these tasks become more challenging the bigger your operations.

04. It is important to consider the product’s life cycle.

There is no way to know what the future holds. Each item in your catalog will eventually go out of business. However, some items may take longer to reach this point. It is important to understand how the different stages of the product cycle impact demand. Are you in the growth stage of your product and are you likely to gain more customers? Is it in decline or saturation, and therefore is there less demand? Incorrect forecasts or overbuying could result if you don’t know where your product is at.

05. Marketing too fast

Although we all hope that our marketing campaigns will be successful, it’s possible for them to fail. You could end up with excess inventory purchased for the promotion. You should not rely on one marketing campaign or advertising campaign to get your product out there. Although you cannot always predict or avoid problems in marketing, you should ensure that your campaigns are based on real data and not just assumptions.

06. Bulk Ordering to Grab a Deal

It’s easy to get distracted when negotiating with suppliers. If you only focus on the price, you might end up with excess inventory that is prone to spoilage, or that requires extra effort to sell.

Overstocking can lead to serious health problems

Overstocking can lead to serious financial losses for any company. Inventory management errors have actually jolted some the largest corporate giants like Target, Walmart and Nike. H&M reportedly had $4 billion in unsold clothing by June 2018. Overambitious projections are the root cause of the problem. Poor inventory management and inadequate product offerings hampered the company’s ability to keep pace with eCommerce and store expansions. Overstocking can seriously impact cash flow, as we have seen. Overstocking can prevent you from replenishing your shelves with more in-demand products. You may have to spend more money to expand your storage space or get rid of stagnant stock (either through steep discounts, ads or removal services).

8 ways to reduce overstock

Overstocking is harmful, but there are also risks associated with understocking. It is important to balance inventory with consumer demand. This can be done using the right tools, processes and visibility. Tables of Content

1. Use ABC analysis
2. Centralize and automate
3. Build strong supplier relationships
4. Monitor trends
5. Conduct regular inventory audits
6. Dropship products
7. Pre-order
8. Use a POS system

01. Apply ABC analysis

Popular method of prioritizing certain items is the ABC inventory analysis technique. This technique helps you to identify the top 20 percent of your products responsible for approximately 80% of your revenue. You will need to classify your items into three levels (A,B, and C) taking into consideration demand, cost and riskiness. You can also assign tiers based on product categories if you have thousands of SKUs.https://caf7956c-6104-4b0d-8fcb-65a0c1512fc6.usrfiles.com/html/db9376e69cfa487ea0fa0b912ae51a4f_v1.html After you have broken down your catalog into tiers, align stock levels according the importance of each (see “Percentage inventory” column in chart above). Tier-A items should be counted and tracked closely, so they can be reordered. Tier-C items, on the other hand, are lower-priority items that can easily be stockpiled in larger quantities to save time and effort. You should be able to understand all tiers’ inventory turnover rate, lead times, seasonality and other important factors.

02. Automate and centralize

A central inventory management system can streamline and optimize many key workflows, including forecasting, inventory tracking and inventory analysis. Wix eCommerce includes inventory tools that will help you better manage and grow your eCommerce business . Wix allows you to keep track of all your stock, no matter if you sell through one channel, another, dropship, or use a 3PL. Wix helps you keep track of what is in stock and when it’s time to order more. A sophisticated inventory system will help you make better repurchasing decisions. It will automatically calculate your sales figures, sales velocity, margins and lead times.

03. Forge strong supplier relationships

The best supplier relationships don’t have to be purely transactional. They are built on mutual trust, clear communication and mutual trust. It is important that your suppliers understand the busiest selling times, feel like they are a true partner, and trust that they will always be paid on time. You’ll be able to get the best inventory rates if you have strong relationships. You’ll also find suppliers more inclined to expedite your orders or check in with each other when there are busy seasons. Some merchants are so confident in their suppliers that they have set up a vendor managed inventory (VMI) system. This setup allows the supplier to forecast your inventory requirements for you and then decides on the order amount and reorder points. VMI is a win-win arrangement. It avoids overstocking and avoids over-manufacturing. It requires trust and alignment of goals, which is obvious.

04. Keep an eye on trends

Google Trends and other social media listening tools are available to you. These can help you determine when demand for your product is highest or lowest, and which demographics are most likely to be interested in it. To find hot products, you can drill down into related topics or specific queries. Is it volatile or stable? Is it increasing continuously? These questions will help you make better buying decisions based on both internal and external data.

05. Regular inventory audits

Merchants often schedule inventory audits twice per year to identify inventory issues and to evaluate your processes. They can however be time-consuming, costly, and disruptive to your business. You can also try cycle counting. Cycle counting is the process of auditing a subset inventory during business hours. You can cycle count anywhere from every quarter to every single day. Some items, such as your fastest-moving stock, may need more frequent counting while others may not. It is important to keep accurate and current inventory records. This will help you reduce your dependence on safety stock.

06. Dropship products

Dropshipping allows you to eliminate the need for inventory. This model allows your supplier to ship items directly to your customers when they place orders. Dropshipping can be a viable option for products that are C-tier (or possibly B-tier) and don’t need high levels of control. Dropshipping is another option. Dropshipping comes with its own risks. Dropshipping can be frustrating for customers if you ship an order to your supplier late or in poor conditions. Before you start a dropshipping arrangement, it is important to establish a good relationship with your supplier.

07. Pre-Order

Pre-orders are a way to reduce inventory management guesswork. Pre-orders can be accepted if you have outsourced stock or are about to release a new product. This allows you to gauge interest before you place an order with your supplier. Pro tip: When accepting pre-orders you should pair it with bonus content. Pre-orders can be combined with exclusive bonus content, such as swag and entry to a raffle. Incentives can increase sales, customer satisfaction, advocacy, and loyalty.

08. Use a POS system

An reliable point-of-sales system is vital for any omnichannel retail strategy. It is used to track all sales, in-store and online, to ensure that your business has the correct inventory. The Wix PO, for example, allows you to track stock by serial number, track stock according to location, manage inventory according product variation, consolidate purchases and orders, and even set up low-inventory notifications.

Bonus tip: 9 ways you can liquidate excess inventory

Sometimes, even with all your best efforts to reduce inventory, there will still be excess stock. You don’t have to lose your entire inventory immediately if you liquidate excess stock. These are some of the ways you can get rid of inventory and recover some of your initial investment.

1. Sell excess inventory on other channels – A product that is slow to sell on your website may sell quickly on Amazon, eBay, and other third-party platforms. You could also try shifting inventory around if your physical stores are located in different locations.
2. Bundle products – Combine your underperforming products and popular products that target a similar audience. If a product is discounted with one of their regular purchases, buyers may be more inclined to try it.
3. Reposition, reposition and remarket slow-movers Could your product pages have more product information, better images or video? Is your product needed to be moved to a better area on your site or store?
4. Discount or price reduction – Create a clearance page or offer a limited-time deal to increase conversions. Your buyers might be interested in bulk pricing or volume-based discounts.
5. Give slow-moving inventory items as gifts A slow-moving item can be used as an additional gift for customers who are most valuable or have high-value purchases. This strategy, while it may not be able to recoup all the cost of your item entirely, can help increase brand loyalty and indirectly generate additional sales.
6. Arrange supplier buy-back – Many suppliers offer “buy back” or refund policies for unsold inventory to say “thank you”. Ask your suppliers if this option is available.
7. Use a liquidation company Sell excess inventory to liquidation companies to quickly free up space. Compare your options and read reviews. Not all liquidation services are worthwhile.
8. Hold an employee sale– Reduce select stock items and have an exclusive warehouse sale for employees only
9. Donate items Support your local community, and as a secondary benefit, reduce inventory costs by donating slow moving items.
10. source https://www.wix.com/blog/ecommerce/2022/06/overstock-inventory