First Person: How Overstocked Inventory Happens and What Can You Do About It

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In my experiences as retail store manager, a small business owner for six years and as a small business consultant who worked with over 173 small business owners, I learned that overstocked inventory happens for a number of reason. Some you have control over and some happen due to industry changes while you're not looking. But knowledge and a plan can help sell that inventory thus avoiding a loss and growing profits.

Reasons for Overstocked Inventory

It's hard to avoid overstocked inventory if you don't know the reasons for its build up. The following eight events cause overstocked inventory;

- Order cancelled or customer went out of business before paying for the order
- Desire to have a 'security blanket' of inventory to handle sales immediately
- Revolutionary competitive product obsoletes your inventory
- Your own product development causes a drop of sales efforts by sales team interested in selling the latest and greatest
- Excess inventory ordered in error
- Poor inventory management and controls
- Business failure so no time or staff to sell off the stock
- Foreign manufacturing undercuts your manufactured costs and pricing

Ways to Avoid Losses Due to Overstocked Inventory

- Required a large deposit or full payment in advance for any custom or non-standard orders
- Base your orders on products you know that you sell regularly and order based on those figures
- Develop alliances with other merchants to be able to order at a discount if you need to fill an order when you are out of stock
- Convince your customer to allow you to order it, collect in advance and then direct ship to her
- Train your sales people how to find customers for now older technology, offer spiffs (incentives in addition to commissions) for sales of that remaining stock, and offer discounts or other incentives to the customers to buy it while it still has value
- By having a review step before placing large orders to ensure that you need that quantity being ordered will minimize mistakes in ordering
- Develop better inventory controls such as a good inventory software program, tighter procedures for checking out inventory and returning it to stock, including confirming the parts in the box are what they are supposed to be
- In the event of business failure, find a wholesaler to buy your stock or sell on eBay or other online auction sites or approach a barter site
- When competition, domestic or foreign, threatens to undercut your sales, identify your strengths against that product, like better quality, better support, lower freight costs, or better availability

As they say, life happens. Every business that stocks inventory will have some of it become obsolete. But by recognizing the eight causes of overstocked inventory, you can minimalize how often it happens and the amount of loss it costs you. Take appropriate action from the nine steps listed here to increase your sales of potentially obsolete inventory so as to protect your profits.

More from this contributor:

How I Plugged Inventory Leaks in One Small Business' Profits

First Person: 5 Ways to Reduce Obsolete Inventory

First Person: How to Avoid Dead Inventory


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