In a perfect world, organisations would have stock ready for sale just before customers buy it, and they would receive their customers’ payment before they pay their suppliers. Too little stock and customers switch to competitors, too much stock causes cash flow and storage issues.
Stock levels should be reviewed regularly. A useful indicator of stock levels, especially when calculated by product line, is inventory turnover (Cost of Goods Sold/Average Inventory). A high number indicates strong sales or insufficient stock, a low number indicates slow sales or excess stock.
Excess stock should not be ignored as it ties up warehouse space and cash that could be put to more productive uses. Prompt action to quit the product will minimise losses. Consider your marketing of this product. Do customers know you have it? Do they need more information to understand its benefits? Is the price point reasonable? Perhaps discounting the product to all customers or making special offers to customers who have bought this, or similar products, previously will help to sell it. Alternatively, the product could be bundled with more popular items to reduce customer’s perceived risk in purchasing, or new markets could be considered. There may even be an option to return the product to its suppliers.
At some point, the benefits of receiving a return on the product will outweigh the costs. All the same, it should be disposed of ethically. Surplus inventory traders and/or donating it to a charity who genuinely needs it are much better options than landfill.
This article was first published in the Mercury Bay Informer of 29 May 2019. See www.theinformer.co.nz