In these turbulent times, keeping a balanced inventory that doesn’t drain your finances can seem a huge amount of pressure – what with keeping your best-sellers in stock, maintaining quality control, honing in on slow-moving products and countless other factors to juggle.
If we’ve learnt anything in the retail world over the last few years, it’s that an out-of-control inventory can make or break your bottom line, no matter how established the business. This is a particularly dangerous issue when it comes to obsolete inventory, which can devastate a retail business if gone unchecked.
Obsolete inventory (also called ‘dead’ or ‘excess’ inventory) is quite simply unsellable stock – items that are out-of-date, expired, damaged or no longer of market value. It’s a particular risk if you deal with products that have a high turnover or short shelf life, such as apparel, electronics, food and other perishables, and can easily accumulate in the warehouse right under a retailer’s nose, blocking cash flow and eroding profitability.
So how can you achieve a slick and transparent inventory, full of active items that will sell quickly, boost profits and save you money in warehouse storage? Read on for our inside techniques on how to get to the root of obsolete inventory and stop it wreaking havoc on your business.
What causes obsolete inventory?
It’s a reality of retail that sometimes products can’t be sold. They could have manufacturing issues, go out of style, pass their sell-by date, or use outdated tech or discontinued components. Sometimes they’re obsolete because they just won’t sell and are unlikely to sell in future, even if the reason is unclear.
Obsolete inventory is an inevitability of selling items of limited shelf life – but how quickly you identify that inventory, move it along and take steps to prevent it in future is what stops it becoming a real problem. Having exactly the right amount of products, right at the moment your customers want to buy them is all part of a retailer’s expertise, and is never an exact science. However, there are some ‘traditional’ inventory planning processes that can exacerbate issues with obsolete or ‘dead’ inventory…
- Buying too much safety stock Keeping ‘safety stock’ – when retailers order a surplus of inventory in case of unexpected demand – has been a commonly used retail technique for years. However, if there’s no real method to the amount of safety stock ordered, or you regularly buy the same inventory using automatic purchase orders, for instance, it’s too easy for unnecessary items to accumulate. This was the case for Walmart last year, when the brand battled huge inventory overspill. Some workers attributed the bloat to an automatic purchasing system that repeatedly ordered the same things, despite the apparent shifts in demand.
- Not treating sales channels differently Omnichannel merchants receive sales from different online platforms and physical stores, yet when it comes to inventory, many make the mistake of forecasting the same inventory across business. Just because a red shirt is a best-seller in physical stores, that doesn’t mean it will sell well on Amazon, for example – and this assumption can be costly. Treating your sales channels homogeneously will land you with a surplus of items that won’t sell.
- Using an obscure inventory planning system Are you using spreadsheets and manual calculations to make forecasting and purchasing decisions? This might temporarily work for a small business with minimal products, but as inventory grows and business scales, the chance of human error, data gaps and out-of-date information can prove a huge risk that’s simply unsustainable. With no way of seeing real-time data, your inventory will become so obscured that it could even halt business entirely.
- Inadequate inventory management If your regular purchasing methods have led to obsolete inventory building up in the background, inventory can become unmanageable. A traditional IMS, or Inventory Management System, can identify what’s in your warehouse, but it won’t cover why obsolete items have racked up in the first place, nor does it provide the technology to avoid it in future. An IPS Inventory Planning System, such as Inventory Planner, will not only identify which items are obsolete but also offer data-fueled purchasing recommendations – so you can regularly run clear-outs and purchase more in line with demand to prevent inventory obsolescence hitting critical levels.
- Too many dud products It’s never guaranteed that the products you choose to sell will be a hit – after all, no one has a crystal ball into marketability. However, continually purchasing dud products will cause a pile-up in the warehouse, and could mean your buying and purchasing decisions need refining.
Avoiding obsolete inventory
Forward-thinking retailers know that a clean inventory is the key to a buoyant business, and there are actionable steps you can take to get ahead of obsolete inventory build-up. To avoid an excess of dead items causing your business to get stuck, try the following four techniques, for starters:
- Reveal exactly how much obsolete inventory you’re holding When an excess inventory issue is apparent, it’s tempting to turn a blind eye and focus on your best-sellers and trending items instead. Instead, face up to the scale of the problem. Gaining full visibility of your entire inventory allows you to identify exactly how much of an overhang you’re dealing with, and is the first step to forming a plan of action.
- Sales forecasting should use historic data – alongside real-time insights
Sales forecasting is a real skill, and with factors such as supply chain issues, extended lead times and seasonality to consider, it’s almost impossible to do manually. Progressive inventory planning tech should use historical data to predict sales, yet also factor in real-time trends and demand, for always up-to-date accuracy. This allows you to make faster, more informed buying decisions based on having exactly the right amount of items at the right time.
- The end of ‘safety stock’ As mentioned earlier, ordering regular safety stock shouldn’t be necessary when your forecasting function is telling you exactly how much to order and when. Using reliable forecasting technology will eliminate the need for the old-fashioned ‘safety stock’ tactic by offering time-based planning along with built-in buffers for supply chain issues.
- Have teams sing from the same hymn sheet
Using spreadsheets or disjointed operational systems is a recipe for disaster, resulting in different teams referring to old data or using their own complicated processes to carry out tasks – this is how inventory ends up piling up in warehouses. For a tight, streamlined inventory system, the warehouse team should be in communication with the purchasing team; the purchasing team with the receiving team and so on, so that everyone is working from one central source of truth. Using a retail operating system such as Brightpearl, which seamlessly syncs to Inventory Planner and any other sales channels you use for business, means insights are amalgamated, in real-time and used by everyone across the board.
Excess inventory can affect retailers of all sizes, so we put together a free resource to help online retail brands reduce an overstuffed inventory for good.
Download our free Checklist: 11 Ways for Retailers to Reduce Inventory Overhang today. It’s packed full of techniques that the most successful retailers are using to battle excess inventory, boost cash flow and move towards their revenue and growth goals.