Problem inventory is best described as any merchandise that cannot be sold to your regular customers at everyday wholesale or normal promotional pricing levels. More specifically, products that need to be deeply discounted to sell are considered problem inventory. These include, but are not limited to, overstock, excess inventory, short-coded or out-of-code items, package changes, returned goods or damaged products.
The good news is that through proactive inventory management, the number of problem products can be reduced. Of course, once an item becomes a “problem”, the sooner it can be sold the better. One of the keys to successful inventory management is knowing when the products are turning into problems and then trigger the reduced-price sales process in a timely manner.
There are several positive benefits to quickly selling off problem products:
- Generate capital. Product that is sitting in the warehouse, which a manufacturer or wholesaler is unable to sell at full price or as part of a regular promotion, is costing money. The sooner it is sold, the quicker money flows back into the company, even if it is sold at a reduced profit, breakeven or is sold below its cost.
- Generate cash flow. Logically, bringing in money for product that is sitting in a warehouse is better than having it remain in storage with no or very low sales. At a certain point, bringing in cash is better than the option of further reductions in the selling price.
- Free up warehouse space. Products that are not turning take up valuable warehouse space, which can be used for faster-turning or fresher items that can be sold at higher prices compared to problem inventory.
- Lower monthly charges. Continuous monthly charges accumulate, particularly if the product is stored in a public warehouse. These warehouses charge for storage regardless if a product is “fresh” or has problems. Thus, the advantage for an immediate sale if there is problem inventory.
The longer a manufacturer holds inventory that must be sold outside of regular channels, the closer it gets to the Best By Date, Use By Date or Expiration Date. The older a problem product becomes, the lower the sales value to a buyer. As a result, the selling price continues to decrease the longer it is held in inventory.
Long stays in warehouses opens the chance for product to become damaged. While this doesn’t happen often, if a product that cannot be sold is sitting on the warehouse shelf, there is a chance that something could happen to it and further reduce the selling price or render it of no value.
Short dating is an issue that can cause problems down the line for the lifecycle of inventory. This means that the product’s Best By Date, Expiration Date or Use By Date is getting too close for your regular customers to buy the product. The key is to identify these dates long enough in advance to be able to sell the products for the maximum amount of money.
So how can manufacturers and wholesalers best manage inventory? The key is to have an inventory management report which is reviewed at least monthly. If your company doesn’t have such a report, there are numerous inventory management systems on the market that can easily be bought through independent software companies. Another choice is to design a system in-house, if you have the need and resources to do so.
If a manufacturer uses an outside warehouse, that facility should provide a monthly inventory report which contains the information needed to review all aspects the current inventory situation.
Whatever system you use to monitor your valuable merchandise, it should track the dating and, as previously mentioned, be reviewed monthly. It’s amazing the number of companies that suddenly realize there is short-dated product that they didn’t know they had in inventory. Today’s computerized and customized inventory management systems are a boon to our business—get one ramped up to do the heavy lifting for your stock and see the change to your bottom line.
To discuss overstock or problem products you want to sell, contact Dick Lansing at
The Lansing Group: