4 Steps to Trim Down Your Excess Inventory
Excess stock is bad for business. It takes up valuable warehouse space and costs you a lot of money while it becomes obsolete. And, 10% of the items in your warehouse will never be sold, according to Slimstock inventory analysts.
These items are unlikely to bring in revenue, so why are you holding on to them?
ELIMINATING EXCESS STOCK TAKES COURAGE!
The problem is that removing these items from your operation is easier said than done. Given that you have made a financial investment in these products, accepting that they no longer have value for your business can be a hard pill to swallow.
Writing off obsolete inventory will come at the cost of your margins. This won’t amuse the finance director or the board, but it is totally necessary. The original investment in these items has already been lost, and continuing to let them take up space in your warehouse will only make these losses worse.
4 Steps to “Painlessly” Remove Excess Stock
So, what can you do to eradicate surplus inventory from your operations while still keeping the potential financial impact to a minimum?
We at Slimstock have outlined 4 simple steps to help you eliminate the excess stock that is holding your business back. By following these tips you will be able to minimize inventory costs and free up working capital, both of which will be music to the financial director’s ears!
Step 1) Physically Remove the Stock
Before you can take excess stock off the books you first have to take it out of your warehouse. You could store it in a container or an unused basement closet – it doesn’t matter so long as it’s out of sight.
Although it might seem odd to effectively “hide” obsolete stock, this step is necessary. As long as it’s in the warehouse, this stock is taking up valuable space that could be used by other items that are actually going to make your business money.
Step 2) Remove from the Administrative Process
Once you have identified the excess stock, the last thing you want to do is order more. Ensure that the obsolete articles are removed from your ERP as well as any other transaction system. If that’s not possible, at the very least make sure that purchase and sales orders for such items can no longer be placed.
Step 3) Financial Devaluation
Now comes the hardest (but unavoidable) step: re-valuation of the stock. Although painful, you cannot afford to postpone this. If you do, sooner or later you will have to go back to the same old conversations with your sales and finance teams. And as we said at the start: obsolete stock isn’t making your business money, instead it’s costing you more the longer it remains.
Step 4) Damage Control
What do you do with your excess stock once it has been identified and removed, and the appropriate administrative and financial actions taken? It may be possible to find a buyer for it. Some of our customers have had good luck with identifying the last customer who ordered it and making them an offer they can’t refuse. You can also ask the supplier if they offer a buy back, or want to take their old stock back. Depending on your business, another idea is to see if it can be donated to a charity or non-profit.
You might be asking yourself at this point: “Why not take these actions while the stock is still in the warehouse?”
Based on our experience, trying to remove obsolete stock while it remains on premises often results in it remaining on your balance sheet at the end of the year.
Prevention is the Best Cure!
After going through the often difficult process of removing your existing excess stock, the last thing you want to do is the same thing again in 6 months. Ask yourself how the stock became obsolete – was their problem in forecasting that led to delays? Was demand or availability affected by seasonality?
If you’d like a hand in figuring this out, Slimstock’s focus on optimizing stocking policies, services levels and product lifecycles has helped hundreds of businesses just like yours put in place the right processes, tools and knowledge to minimize the risks of excess.