8 reasons why you’re struggling with excess stock

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8 reasons why you’re struggling with excess stock

Ever find yourself wondering why your inventory looks like it’s been on a shopping spree without telling you? You’re not alone. Having excess inventory means you’ve got more stock than you could possibly need, given the demand. This isn’t just a minor oopsie—it’s a full-blown problem that can lead to inefficiencies, tie up your cash, pump up your carrying costs, and even boost the chances of your products becoming about as current as last year’s memes, which, spoiler alert, hits your profit margins hard.

In this blog, we’re diving deep into the mystery of how businesses end up with more inventory than a clearance sale at a department store. But first, how can you tell if your stockroom’s overflowing more than your email inbox?

Spotting Excess Inventory: A How-To Guide

  • Warehouse Woes: Take a peek at your warehouse. Is it looking more crowded than a concert mosh pit? Struggling to find space for new arrivals because everything else is hogging the limelight? That’s your cue that some of that stock might need to go.
  • The Money Crunch: When your money’s all tied up in stock that’s just lounging around, it means you’ve got less to spend on, well, anything else. This might even lead you down the path of debt just to keep things running smoothly.
  • Inventory Manager’s Dilemma: Juggling an overstuffed warehouse and a tight budget can leave inventory managers scratching their heads. Trying to balance bringing in the right stock and offloading the excess without enough time to dig into the why can spiral into more unwanted stock and even potential stockouts, upping the stress and financial strain.

And here’s a pro tip: breaking down your inventory into non-stocked and stocked items can be a game-changer in identifying where the excess lies.

  • Non-Stocked Items: Ideally, you shouldn’t have any of these lying around. They’re the ones you order on an as-needed basis. Got any in stock? That’s your excess right there.
  • Stocked Items: Here, anything above your max stock level (think cycle stock plus safety stock) is your excess. It’s like having leftovers after a huge dinner; it’s more than you need.

But hey, don’t get it twisted: excess stock is not the same as safety stock. Safety stock is your backup plan, designed to cover you when demand spikes unexpectedly or suppliers are running late, ensuring you don’t have to dip into excess territory. It’s all about striking that balance between being prepared and going overboard, keeping your order fulfillment smooth while keeping your investment in check.

excess stock

Causes of over-stocking: 

  • Inadequate Forecasting Techniques: The cornerstone of inventory management lies in precise demand forecasting. Yet, many organizations find themselves hamstrung by outdated tools or methods, such as overreliance on spreadsheets or underpowered ERP and WMS systems. The absence of advanced forecasting software leads to either stock shortages or excesses, demonstrating a critical need for statistical forecasting capabilities within inventory management systems.
  • Seasonality Oversights: Overlooking the impact of seasonality on demand patterns can significantly contribute to inventory glut. Products subject to seasonal demand fluctuations—driven by holidays, weather, or other periodic events—require tailored forecasting to avoid the pitfalls of overstocking. Ignoring these patterns, as seen in businesses that fail to adjust their inventory in anticipation of seasonal shifts, invariably results in surplus stock awaiting its next cycle of relevance.
  • Market Misunderstandings: Integrating qualitative insights—market trends, competitor activity, and consumer behavior—into forecasting models is essential. A purely data-driven approach, devoid of market context, can lead to inflated demand estimates and subsequent overordering. It’s the blend of empirical data and market intuition that crafts accurate forecasts, safeguarding against unnecessary inventory accumulation.
  • Product Life Cycle Ignorance: Every product traverses through a life cycle encompassing introduction, growth, maturity, and decline phases, each affecting demand differently. Failing to account for these transitions, especially as products wane in popularity, can leave businesses saddled with stock that no longer meets market needs, highlighting the importance of life cycle-aware forecasting.
  • Overzealous Service Level Targets: In pursuit of exceptional customer service, companies may intentionally inflate their inventory levels to ensure product availability. While this strategy aims to enhance customer satisfaction, it often results in holding excessive stock, underlining the delicate balance between service levels and inventory efficiency.
  • Questionable Purchasing Practices: Negotiating favorable purchase terms or bulk buying can lead to acquiring stock without genuine demand, especially when swayed by discounts or supplier minimum order quantities (MOQs). This scenario underscores the necessity for strategic purchasing decisions aligned with actual sales forecasts to avoid accumulating redundant stock.
  • Reactive Supply Chain Strategies: In response to ongoing supply chain disruptions, businesses may overcompensate by ordering in excess, aiming to buffer against potential stockouts and lead time uncertainties. While well-intentioned, this approach can culminate in surplus inventory once supply chain normalcy resumes, advocating for a more measured reliance on safety stock as a safeguard.
  • Complex Supply Chain Structures: Enterprises operating within intricate, multi-tiered supply chains often experience cumulative surplus stock, a consequence of decentralized inventory control and incremental stock additions at each stage. This phenomenon points to the need for centralized, accurate demand forecasting to streamline inventory levels across the supply chain network.

How to avoid excess inventory problems

Introducing Octai Inventory Intelligence, our cutting-edge Machine Learning (ML), data-driven solution designed to transform how you manage inventory. Our platform goes beyond traditional methods, utilizing advanced ML algorithms to enhance forecast accuracy by taking into account product lifecycle, demand patterns, and market trends.

If excess inventory is a concern for your business, reach out to us at Octai. Our specialized stock health analysis service is designed to evaluate your current inventory, pinpointing healthy, excess, and obsolete stock items. We then provide actionable insights and recommendations to optimize your inventory levels, ensuring you have the right products in the right place at the right time, minimizing waste and maximizing sales opportunities.

Transform your inventory planning with Octai Inventory Intelligence and experience a smarter, more efficient way to control your stock and enhance your business’s operational efficiency and profitability.