Understanding the Impact of Overstocking and Understocking

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Is it better to keep additional stock on hand in case demand shoots up or less stock in case there’s a demand shortfall? This is quite literally a million-dollar question for businesses in industries like furnishing and home décor where the market is worth billions of dollars!

The answer to the above-mentioned questions depends on the pros and cons of overstocking and understocking. With this in mind, here’s a look at the impact of both.

Overstocking

One of the most common arguments for overstocking (especially when it comes to non-perishable items) is the idea that there’s no downside. If you overstock, the best-case scenario is you’ll have enough on hand to cater to demand, while the worst-case scenario is you’ll have stock remaining for future demand—right? Unfortunately, it’s not as simple as this.

Overstocking is only beneficial if you’ve got enough warehouse space and you’re sure customers won’t demand other products moving forward. This isn’t applicable to industries like furnishing and home décor where consumer behavior trends dictate the nature of customer demand. For instance, if you’re a furniture store with excess stock of a chair your customers no longer deem fashionable, you’ll be left bearing unnecessary storage expenses.

Understocking

The argument for understocking is simple—you keep less stock than you require on hand and order more as demand arises. This is a seemingly sound strategy, but what happens if there’s a sudden spike in demand? Unless you’ve got access to quick stock replenishments, you might not be able to capitalize in time and your profits will dip.

Understocking is great for perishable items because it’s a better option than overstocking them and risking waste. With that said, the ideal solution is to maintain a balance between overstocking and understocking—and that’s where inventory management software comes into the picture.

AltheaSuite’s Groundbreaking Cloud Inventory Management Software Helps Clients Find the Right Balance Between Overstocking and Understocking

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Want to maintain the ideal amount of inventory at each of your warehouses? Ready to automatically re-order stock so you’re always within par levels? These are just some of the benefits of our inventory management software AltheaSuite!

AltheaSuite gives clients accurate insights into when to order stock and what safety levels to operate at depending on historical demand. We’ve also built in serial number management facilities to help you track stock accurately and provide numerous case studies and video resources to brief you on how to use AltheaSuite to operate in that sweet spot between overstocking and understocking.

Get in touch with us today to book a demo and change the way you manage inventory forever.

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