If everything goes right in a business, entire inventory gets sold out within expected time period. Nevertheless, that is not the case, more often than not. The portion of inventory that didn’t sell at retail locations within expected time period is known as overstock inventory. It is otherwise called as B-stock, excessive inventory or excessive stock. These items are not returns or defective ones. It’s just that the customers haven’t purchased them within the time period. In real scenarios, losses like these are part of the business. These stocks find their way into secondary markets. Till, then they are just loss of revenue, considering the capital associated with purchase and storage space taken.
What causes excessive inventory?
It’s the case of excessive supply over demand. The situation is often caused by over delivery or mismanagement of stocks. In management terms, it is caused by poor management of material flow or of stock demand. Excessive stocks can happen cause of irresponsibility from both seller’s and buyer’s side. Seller or supplier can over deliver when the demand is not that much. Buyer can make poor ordering mistakes and stack up overstock. Bad management of stocks by the buyer can also result in overstock. The real question lies in what to do with this kind of inventory.
Three ways, overstock inventory is handled…
Firstly, they are often returned to the manufacturer. Secondly, the overstock merchandise is returned to the original distributor. Thirdly, inventory liquidators come into the equation. These are the companies that take the stock and resell it on secondary markets. Secondary markets would include both secondary wholesale as well as retail markets. Sites like Amazon are becoming classic examples of retail. In most cases, the inventory is sold at rocketing low prices to existing customers. Inventory liquidators sell heavy stocks to salvage companies which process the metals in its built.
Why Overstock inventory is an inevitable aspect of any business?
Beneath the loss of revenue, it also offers a few strategic benefits. Bulk purchasing is cheap. Companies can save huge on shipping, when they make bulk orders. Thus, it would drive small businesses on savings factor alone. Additionally, buffer stock is always good to have. It helps reduce refill delays and avoids stock outs. The ultimate benefit of overstock is higher service rates. Having inventory in hand at all times would mean cashing in on every opportunity. A smart inventory planner would balance having low amount of inventory and still enjoy these benefits.