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Disadvantages of excess inventory

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Sam Cole

Having an inventory is quite positive for a company or organization that wants to maintain order within its warehouses, but what happens when there is the excess inventory? Keep reading this article and find out.

What does it mean to have excessive inventory?

This phenomenon occurs when a company orders its inventory improperly, keeping more than the market demands. It can also happen if demand drops dramatically after you have placed an order. 

Having an excess inventory is not a good thing for a business as it can hurt replacement rates and the costs associated with handling merchandise. 

Next, we will specify the main disadvantages. 

The most important ... your space

The biggest problem with having excess inventory is poor space occupation. All those products that cannot be sold occupy a place that can be used by other items with a higher turnover.   

Storage costs

As we mentioned in the previous point, the products that are not necessarily occupying a place that can be used by others. This space implies money since, although many companies have additional warehouses, having extra storage implies a cost, and if a company is growing, it will be difficult to have the resources for it.

Also, consider the manpower of those responsible for carrying out and moving excess inventory.

 

Reduction in your earnings

Having a surplus of merchandise leads to reduced profit margins in many instances. 

The first scenario to visualize is that where the products are sold at a lower cost or are put on sale. This is in order to incentivize the consumer to buy them and regain some space in the warehouse.

Many of these sales are made, but they are made at a price well below the initial price. Therefore, avoiding excess inventory allows you to be able to sell products at the stipulated cost, and that this does not represent any significant loss for the company. 

Accumulation of products turned into waste

No company buys products to discard them. However, when there is excess inventory, most of it always ends up expiring or deteriorating. For example, companies that are dedicated to working with fresh food must throw away the leftovers when they spoil. 

Of course, this can be avoided in two ways: The first is that the products can be given adequate circulation to prevent them from reaching the point of expiration or damage. The second is to refuse to store or retain any product that does not require it.

Greater risks for accidents

Each company usually has a logistics and security system activated that guarantees the protection of the workers' lives and their assets. However, this does not mean that accidents can occur in everyday life, such as fires, floods, theft, among others.

Having excess inventory generates greater vulnerability and danger because there are more products that can be lost. 

Old fashioned products

Another clear disadvantage is running the risk of losing some of the stored products, either because they have gone out of style or because their demand has dropped considerably or because the market simply no longer cares about it.

As we mentioned a few points above, the options against this is having to sell them at a lower cost than the initial investment, or in the worst case, permanently get rid of them.

As we have seen, having excess inventory represents an unfavorable scenario for a company. However, it is not the end of the world. With a prepared team and a good strategy, optimal management of the merchandise can be carried out, in order to achieve this way, having a fair amount of products and not falling into all the disadvantages that surpluses imply.  

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