Manage excess inventory: 7 reasons to avoid too much inventory on hand

Manage excess inventory: 7 reasons to avoid too much inventory on hand

Amy Beardsley
By Amy Beardsley
Aug 20, 2024
7 min read
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Excess inventory doesn’t seem like a bad thing. In some situations, a certain level of excess stock can benefit a business.

But managing excess inventory can result in unnecessary expenses, storage issues and tied up capital. What’s a business to do with too much inventory on hand?

Jump ahead to read the seven reasons to avoid too much excess inventory:

  1. Excess inventory levels can create storage issues
  2. Excess stock can cost you more
  3. Too many goods can hurt the environment
  4. Surplus inventory can tie up cash flow
  5. Oversupply can lead to stock obsolescence
  6. Too much stock on hand can cause stock degradation
  7. Excess stock can reduce profits

To manage overstock inventory, do your best to avoid it in the first place — careful planning and sales forecasts to project customer demand can help.

Too much inventory isn’t always a bad thing —  if your products have long life cycles, you may want to order more to save on ordering costs — but in many cases it can saddle your business with cash flow issues and storage capacity woes.

These are seven good reasons to manage your inventory property:

1. Excess inventory levels can create storage issues

Excess stock takes up valuable storage space.

For example, an e-commerce company might want to capitalize on a trend and order extra products. But what happens to excess inventory if the trend fizzles out? It can cause backup and take up too much space in your storage facility or stock room.

Solution: Refresh your marketing efforts. Move slow-moving or old inventory to a different area in your shop. If the product is listed online, take new photos and write a blog to promote its benefits and uses. Consider creating a sense of urgency with time-sensitive discount prices or promotions.

2. Excess stock can cost you

If you can’t move your excess inventory, it may accumulate and become a storage issue — and storage and warehouse space isn’t free. Storage costs to keep this stock include:

  • Rent, maintenance, utilities and insurance
  • Employee wages to manage, audit and maintain the extra goods
  • Costs as your inventory’s value depreciates over time

Additionally, having more inventory than you can sell ties up cash that could be used to invest in your business or expand operations with new hires.

Solution: Reduce storage space so you’re not carrying costs. Move  excess products to your store floor. Consider selling excess inventory to a liquidation company, though it will be at a reduced price. Ultimately, you’ll get a little cash back to help reduce storage costs.

It can also help to build relationships with your suppliers for flexible order quantities and returns.

3. Too many goods can hurt the environment

Too much product impacts more than your bottom line. It can hurt the environment, too. Think about this: The inventory has a carbon footprint because it took energy and water to produce it. When demand is overestimated, carbon emissions go up and manufacturers waste resources — not to mention the excess that may end up in a landfill.

Better demand forecasting can reduce the waste of energy, material and money on needless inventory.

Solution: Carefully plan and forecast your inventory and product needs. Review past sales reports and look for seasonal trends and other pattern fluctuations before ordering new items. Implement an inventory management system to track stock levels and sales performance in real time.

Also, think about ways to turn lemons into lemonade. Can you transform your surplus stock into something new and sellable? Or consider donating items to charity for a tax write-off.

4. Surplus inventory can tie up cash flow

Cash flow is the lifeblood of any business. It’is important to keep cash flowing to invest in the future.

For example, let’s say you own a bike shop and you invest in several items such as performance jerseys, shorts, and other bike clothing and accessories.

But sales are lower than you’d hoped. You’re not seeing a return on the cash you spent to buy the items. With your money tied up in products, your cash flow can suffer — and you may not have the funds to cover the company’s day-to-day expenses.

Solution: When cash flow is an issue, a sales event can attract customers — and their cash — to your store. A flash sale can create a sense of urgency and draw large crowds to your store. Create new displays, identify cross-merchandising opportunities or create a dedicated section for discounted items. 

5. Oversupply can lead to stock obsolescence

Technology retail is a good example of products that can become obsolete quickly.

Suppose you sell computers or electronic items. You ordered plenty according to your sales forecast and market demand, but a new model was released before you could sell off your supply. In this case, your items have become devalued or worse — dead stock.

Solution: Act fast to liquidate your stock online at places like eBay or Amazon to reach a wide audience and make room for new products.

6. Too much stock on hand can cause stock degradation

Too much stock means  your products aren’t selling as quickly as you’d forecasted. And some items, such as food products, will degrade and lose their value over time. This loss is a common retail business insurance claim.

Solution: To avoid stock degradation, you must carefully forecast inventory needs. Too much can lead to waste and loss. Use sales data to predict customer demand and avoid overordering or overproduction.

7. Excess inventory can reduce profit

If you’re sitting on a lot of products, you may be tempted to cut prices to sell them off. Selling items to capture a partial profit is better than no profit at all, but you’ll likely reduce your margins and make less profit overall.

Solution: Rather than offer steep discounts, introduce product bundling. Group complementary products together and sell them for a slightly lower price than what they’d cost separately. You’ll start to move merchandise without a huge drop in profit margin.

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How NEXT helps small businesses protect their inventory

Business insurance can help small business owners manage their inventory.

Business personal property insurance, part of commercial property coverage, can help business owners if they have too much product on hand.

NEXT makes buying and managing insurance easy for retailers. We’re 100% online, so you can get a quote, buy coverage and get your proof of insurance in about 10 minutes.

Start a free quote with NEXT today.

Amy Beardsley
About the author

Amy Beardsley, insurance expert and contributing writer at NEXT Insurance, is a content marketing writer who specializes in small business coverage. Leveraging her background in the legal field, Amy brings a deep understanding of laws, regulations, and compliance requirements to her work. As a content marketing writer since 2016, she has contributed to publications like Legal & General, Berkshire Hathaway Specialty Insurance, Insurify, and NerdWallet. Her work has also appeared in CNBC, Kiplinger, and US News. When she’s not writing, Amy enjoys playing cards with her family and experimenting with new recipes.

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