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Sam Phipps
Excess stock: we all know that holding too much is bad for business. Yet, based on the experience of the inventory analysts as Slimstock, of all the items in your warehouse, typically, 10% will never be sold. As these items become obsolete, they can cost you a lot of money and needlessly occupy valuable warehouse space. Given that such items are unlikely to bring in any revenue, why are you holding on to them?
The problem is removing these items from your operation is often easier said than done. Given that you have made a financial investment in these products, accepting that these items no longer offer any value can be a hard pill to swallow.
Although writing off inventory will come at the cost of your margins which won’t amuse the finance director or the board, it is totally necessary. After all, when you consider that you have already lost your original investment in these items, continuing to hold on to excess stock will only cost you more money!
So, what can you do to eradicate surplus inventory from your operations while still keeping the potential financial impact to a minimum?
We have outlined 4 simple steps to help you eliminate the excess stock which is holding your business back. Through following these tips, you will be able to minimise inventory costs and free up working capital: both of which will no doubt be music to the financial director’s ears!
The first step in managing obsolete stock is to physically remove these from your warehouse and store them in a place where nobody will find them. You could store them in a container or even bury them; doesn’t matter so long as it’s out of sight. Although this may seem like a bold move to effectively “hide” obsolete stock, this is completely necessary. After all, these items are already costing you too much money and for as long as they are in the warehouse, they are nothing more than a distraction which takes up valuable space that could be used by items that actually make the business money.
Once you have identified the excess stock, the last thing you want to do is order even 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.
And then comes the hardest (yet unavoidable) step: re-valuation of the stock. Although painful, you cannot afford to postpone this step. If you do, sooner or later you have to go back to the same old conversations with your sales and finance colleagues. And as stated earlier: obsolete stock won’t yield anything so only costs the business more and more.
The excess stock has now been declared are now ready for destruction. However, if someone is prepared to buy up the stock, then, of course, this is beneficial. Perhaps a buyer is interested or maybe you can ask your supplier to take their old stock back. Another idea is to identify the last customer who made an order and make him an offer he can’t refuse.
You might be asking yourself at this point: why not take these actions while the stock is still in the warehouse? However, based on experience, this can often mean that the obsolete stock remains on your balance sheet at the end of the year!
After going through the painful task of removing your existing excess stock, the last thing you want to do is to go through the same process again in 6 months’ time. Focusing on optimising stocking policies, services levels and product lifecycles, we help hundreds of businesses just like yours to put in place the right processes, tools and knowledge to minimise the risk of excess!