Surplus inventory is a word that all industrial distributors dread hearing right?
Distributors can’t avoid this problem as the truth is that surplus inventory is one of the biggest costs that modern industrial distributors face nowadays. The costs of manufacturing products, ongoing holding costs and loss of working cash are just a couple of ways that surplus inventory can affect your bottom line.
A recent study discovered that retailers, direct marketers, wholesalers and manufacturers used corporate barter companies to move a large part of their surplus inventory which was worth a couple of hundred billion dollars. The sheer magnitude of this problem demands immediate and dedicated attention. You as industrial distributors need to find a way to avoid, identify and sell your surplus inventory.
- How to Avoid Surplus Inventory
The best way to avoid the extra cost of surplus inventory is by avoiding it altogether but most industrial distributors know that this is easier said than done. But it can be avoided by reacting quickly to correct customer and vendor intelligence, improving your inventory and procurement processes as well as canning any inefficient procedures and processes.
You can use your customer-supplied forecasts by asking your customers to provide their annual estimated usage and normal replenishment amount which you can use to determine your stocking level by mixing these estimates with your actual demand history. Here are 2 ways:
- Get Accurate Customer and Vendor Intelligence to React Quickly
You need to find a way to understand your customer requirements and current trends to get accurate sales forecasts. The faster you know about any order change, cost issues, order changes, quality changes and any service concerns, the faster you can react. Having an online, fully integrated site allows your customers to view your product information, enter or change their orders, check and update their demand requirements which allow you to keep track of your customer’s decisions and adapt accordingly.
- Demand and Inventory Information
Properly managing the enormous amount of information that encircles inventory, products and demand is the single most difficult-yet critical task to complete in order to avoid any surplus inventory.
It is very important that you maintain accurate demand statistics according to the customer, location, period, products and item.
Maintain a steady stream of accurate information to get the details of the “bigger picture” which will allow you to anticipate the surges and drops in demand or take advantage of current costs to avoid anticipated increases in prices.
- Identify What Causes the Existence of Surplus and How to Identify the Excess Inventory
Surplus inventory is always understood but finding your inventory surplus is sometimes a challenge. Some likely causes of surplus inventory are a season or product or lifecycle, a new competitor, loss of a competitor or supplier or a branch closure or consolidation. You should prioritize your surplus inventory according to your investment and turnover, ageing and shelf life but you will need to examine the trends quite closely to get the best results. This is what you need to identify and to control surplus inventory:
- Determine the Quantity
You can opt to use your product forecasts to find out the quantities that are needed to support the sales and adjust for just-in-time items. Consider the fact that short-term supply is required to fulfil the expected orders.
- Control Inventory through Returns, Monitoring and Policies
Customer returns, late or cancelled backorders and blunders in vendor shipments should all be returned to the vendor. Create and follow policies that don’t allow customer returns of repackaged items, non-returnable final sale items, late or cancelled back-orders and items which are obsolete or have not been purchased.
- Eliminate the Surplus Inventory
Purchased inventory is considered a “sunk” cost as it has already been paid for and money has already been spent. Once there is surplus inventory, it is best to find out the best ways to recover your costs as soon as possible.
It is best to create an internal surplus removal plan which uses the surplus inventory at important locations to meet the normal requirement at various different locations.
To get rid of surplus inventory, industrial distributors can appoint someone to co-ordinate the surplus management process. This appointee can work with both the purchasing and sales departments to get rid of your surplus inventory items. Here’s how:
- Return Products if Possible
You should return your products to suppliers. Flexible key suppliers must be negotiated from the beginning of the relationship.
- Explore the Options for Selling Surplus
Maintaining an accurate record of your customers needs can help you to generate a list of customers who have bought your products in the past or make a list of up-sell and cross-sell candidates. You can also offer your customers low cost guarantees or freight allowances to move your surplus product quantity faster. You can choose to market your surplus products in targeted email campaigns, on your company website at clearance prices as well as in mailings.
If your current surplus is not being sold to your regular customers then you can think of re-packaging your products with complementary products, reworking them to make them more saleable or sourcing new customers to buy them either overseas or domestically.
Your last resort to get rid of your surplus is by selling it off to a clearance vendor or an auction, sold for recovery or even donated to a charity.
If you are looking to put your used machinery up for sale in India then our professionals at Ezytrader can help you get rid of your excess surplus inventory at the best price.