Most businesses fail to recognize that overstocked inventory is the reason behind their 3.2 percent annual losses. Overstocking coupled with understocking (out-of-stock) situation results in an accumulative loss of over $1 trillion each year for businesses across the world.
These numbers are worrisome for small businesses that already have very minimal profit margins. Taking into account the capital for running operations, overhead costs, and employee remuneration, many businesses fall flat within the first few years of their establishment.
But the solution is quite simple and easily achievable. Today, we’ll discuss overstocking, its downsides, and the ways to prevent it.
What is an Overstocked Inventory?
An overstocked inventory is a situation where a business procures products that are not in demand or have a slow sale cycle. Often, businesses that bulk buy end up overstocking items that continue to remain on the shelf for a long time or until they lose value. While understocked inventory isn’t good for businesses either, overstocking majorly impacts the finances of a business.
What Leads to Overstocking of Supplies?
Below are the factors that can result in overstocking:
- Poor procurement protocols such as bulk buying.
- Lack of forecasts and reporting regarding high-running items and customer preferences.
- Slowed down demand for seasonal goods such as holiday décor, costumes, or perishable items.
- Bulk buying to save money without taking into account the ongoing trends.
- Manual inventory managementthat leads to poor inventory monitoring and control.
Disadvantages of Overstocking
Here are some of the disadvantages of overstocking:
- Wastage of warehouse space
- Stock loses its value
- An unorganized and out-of-date inventory
- Overburdened supply chain
- Financial strain on the business due to items that are stuck and losing shelf life.
Four Ways to Prevent Overstocking
If you want to improve your overstocking situation, then here are some ways to do it.
Conduct an Inventory Audit
Auditing your inventory flow is a crucial step to avoid overstocking.Thoroughly analyze your inventory every few months to learn about the most in-demand and not in demand products.
Invest in Inventory Management Software
Use inventory management software to keep a track of your inventory and benefit from real-time automated updates.
Rely on POS Technology
Integrate POS software with your inventory management tools to keep a track of what’s getting sold and what’s not. Get rid of redundant processes!
Use Data to Make Decisions
Use cloud-based systems for data analytics and learn about customers’ buying patterns. Procure goods that are in demand.
For a Better Inventory, Speak to Us!
Don’t let the goods go bad due to overstocking. With better inventory control, optimized procurement, and using technology, you can also benefit from an accurate and up-to-date inventory.
Get in touch with us at Althea Suite today to invest in cloud-based inventory management software, e-commerce inventory management software, and inventory solutions for small businesses. Talk to our sales team today to learn about our advanced ERP solutions.