Restaurants and other food-related services businesses are probably better inventory control managers than many product companies, retailers, and manufacturers. When their inventory is going bad it smells, they have nowhere to bury it, and they have to get rid of it. Most restaurants sell out of product before they stop offering it, they do not change menus until after the inventory is sold, and if a lot is left over, it goes bad or the owner and chef go on a tuna casserole jag. Two weeks of tuna at every meal would be suitable punishment for any overzealous purchasing agent or salesperson. But for those of us selling vases, picture frames, garden hoses and Christmas trees, excess inventory buyers exist to help us We can have a product liquidation sale to get rid of old merchandise. We can sell excess inventory on closeout websites or by having liquidation auctions.
Many manufacturers and product companies have different variables affecting inventory, from outstanding raw materials commitments through sales channel liabilities. For now, we will address the finished goods-related inventory issues. Work In Process (WIP) and raw material inventory is best addressed in a different discussion that includes MRP (management resource planning) systems. It is important to have a grasp on inventory management so you know when you have too much inventory taking up valuable warehouse space. It is not uncommon for a company to even rent additional space in a 3PL warehouse for closeouts and dead stock. It would be better to sell excess inventory and get rid of dead stock, rather than spend more money on warehouse space to store it. You can either have a product liquidation sale and get rid of old merchandise cheap, for any price, to make room in the warehouse for new products. Or you can list your overstock on closeout websites or contact closeout wholesalers who will make you an offer to buy the entire inventory in one fell swoop.
Before we get to the nuts and bolts (“Data is numbers and numbers have no emotion”), we have to address our egos. Owners, salespeople, and entrepreneurs drink their own Kool-Aid. Many companies hold on to the hope—and hope is NOT a strategy—of selling overstocked products, closeouts, dead stock, obsolete products, and the complete sell-through of products in their sales channels at full price. If new product has not been sold within the first 60 days, it is highly unlikely someone is going to just “come along” and swoop it up at full price. Find excess inventory buyers willing to take the entire inventory and get rid of it. There is an old saying “your first loss is your best loss” and this seems to always be true.
Setting emotional attachment aside, we need to first assess the total inventory liability and the ramifications of any changes to the total sales channel. Know what your inventory is, know where it is, and know its sales velocity and acceleration. Sell excess inventory as soon as you identify it so you don't end up with a warehouse full of dead stock. Often, companies going out of business realize they would have been in better shape had they not held onto closeouts and dead inventory so long. Are you selling 100 per month with a 10% quarterly decline, 100 per month with a 5% quarterly increase, and are you selling without additional or exceptional incentives? How long will the channel inventory take to sell through at the current run rate? Closeout websites can help you liquidate merchandise close to the full price, but if this doesn't work you may need to consider companies that buy closeouts and sell excess inventory for a living. These professionals are excess inventory buyers who know what your excess stock is worth, they are capable of taking the entire inventory, and they know where to sell it quickly.
You must take into account that anything in the channel that does not sell will likely come back, and repercussions could include freight costs, a disenchanted retailer/reseller due to lack of sales, and product damaged in the recall. Closeouts are a part of running any successful business in 2022 and it is important to do whatever it takes to keep your cash flow strong. Sell overstock quickly to closeout buyers, shut down 3PL warehouses if they are costing too much, buy less inventory if you are unable to manage it.
Inaccurate or incorrect forecasting of customer demand can cause you to order more stock than you need – leaving you with obsolete inventory after selling only a portion of what you stocked. An example of inaccurate forecasting in food inventory management would be if McDonald’s “A” ordered thousands of McRibs for McRib season – expecting a huge demand for McRibs – but failed to account for McDonald’s “B” in another part of town who would be supplying the same product – lowering “A”’s expected sales of McRibs and resulting in excess stock and too much inventory for the demand that existed.
Offering a high-quality product should be an obvious step for reducing obsolete inventory, but plenty of retailers, wholesalers, and manufacturers sell shoddy products. If your product doesn’t meet the standards of consumers, or it fails to offer anything new to compete against existing products, it probably won’t sell and you will have obsolete inventory on your hands. This happened to Microsoft’s iPod competitor, Zune, between 2006, when it was released, and 2011, when they stopped producing them. According to Robbie Bach, the former leader of Microsoft’s home entertainment and mobile business, “…we ended up chasing Apple with a product that actually wasn’t a bad product, but it was still a chasing product, and there wasn’t a reason for somebody to say, oh, I have to go out and get that thing.” The result was that Microsoft had a massive store of unsold Zune's that they had to liquidate and simply write-off. Even major companies are faced with having to liquidate merchandise to liquidation companies.
You might realize you have obsolete inventory – or are on your way to holding excess stock – but you’re choosing to do nothing about it. Worse, you might believe that sometime in the future there will be a new surge in consumer demand and your obsolete inventory, closeouts and overstock will simply vanish. Letting obsolete inventory waste away in your warehouse won’t solve the problem, and neither will fantasizing about it disappearing in a stroke of pure luck. Both of these strategies will only increase the amount of dead stock you accumulate. If you have obsolete inventory, the best thing to do is deal with it right away by contacting buyers for closeouts and obsolete inventory, or donate the inventory to get rid of it.
Abandoning excess inventory is absolutely the easiest option to dispose of anything, including inventory. However, just because it is the easiest doesn’t mean it’s the correct method of disposal. Simply walking away from new or gently used, quality product rather than make an effort to find closeout buyers, closeout websites or other excess inventory buyers is irresponsible and costly. You are throwing MONEY, your MONEY, right down the trash shoot. Please stop for a moment and rethink your strategy. Your goal is to turn that product back in to CASH.
Merchandise USA buys excess inventory, overstock, liquidation stock and obsolete products and resells them at a discount to closeout websites, closeout wholesalers and closeout brokers. We have been buying surplus inventory and liquidating stock for more than 37 years.