A five-step approach to reduce excess inventory

December 12, 2022

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This article is part two in a series addressing overstock inventory. In part one, we discussed the implications of sitting on excess stock and why it is increasingly a large concern for many brands with the sudden changes in market demand. We highlighted how you can identify and quantify overstock to take needed action in time to curb it.

Still, getting your stock levels right is tricky. To grow your business you need to make some calculated bets and some of them might not pan out as planned. And so, contrary to their best efforts, many brands end up carrying excess inventory in some part of their assortment. In case your brand is one of the many brands struggling with overstock this season, this article is for you. Here we outline our best practices to address it.

Reduce overstock in five steps

To address overstock in a timely and cost-effective manner we strongly urge you to take an insight-driven approach rather than resorting to price reductions off the bat. This way, your margins and profit might not have to suffer unnecessarily. We suggest you go about it in the following five steps. 

  1. Assess the urgency and set goals

The first step is to identify how urgent the overstock is to decrease. Are there specific parts of the overstock that is urgent to move? Are you carrying excess inventory on perishable goods or that for other reasons can’t carry over into the next season? The severity of the overstock and the financial state of your business will be determining factors deciding how pressing it is to address the overstock, and in what way to do it. 

When this is established, set clear goals to follow up on. I.e. how much of the inventory do you need to reduce, what stock level is ideal to reach, what level is sufficient, at what cost are you willing to reduce it, and what is the deadline?

  1. Identify focus areas

How is your overstock distributed? Is it a specific category, store, or warehouse that is affected? To address your overstock there is no use in drawing from a giant list of SKUs to tackle. Getting a broader perspective of the areas carrying overstock is necessary to understand the cause and determine the best way to address it. More often than not you will find common denominators for your excess items that will help you take guided action.

  1. Define your resources

Once you have determined what overstock needs to be addressed, and how urgent it is to do so, you need to define what resources are at your disposal to do it. Should you activate overstock products in marketing channels or with additional exposure on the website or in stores? Some tactics can be used without harming your brand or future sales of similar products. Others can be effective to quickly improve your cash flow, but have implications for your brand perception and profit. We will take a closer look at different options in the next section. 

  1. Make it a priority across the organization

To effectively address and reduce overstock you need the organization onboard. Marketing and supply chain departments need to actively communicate on needed activations, follow up and reassess as needed. In this article, we give hands-on tips on how brands can work to better bridge marketing and supply chain departments to promote healthy inventory levels. 

  1. Follow up, reassess

Follow up, reassess, repeat or rethink. Has your approach been successful at bringing the stock burndown to a sufficient rate? As noted above, it is important that the team follows up continuously throughout the process to make sure that you are on the right track. If not,  you need to go back to step 3 and take other measures to reach the desired outcome by the deadline.

Define resources across the organization

Zooming in on step 3, there might be a number of resources at your disposal depending on your business structure and the urgency to reduce your overstock.

Proper inventory allocation

First off, you should make sure that your inventory is correctly distributed across all sales channels. Do the overstock items sell better through certain points-of-sale?

Perhaps you are in a position to offer campaigns to your wholesale customers in order to sell more products through their channels instead. Working to attract whatever demand you already have should always be the first port of call before you resort to more costly options. 

Marketing and exposure

What activation in terms of marketing and exposure can be done in order to lower your stock levels? Could the overstocked items be prioritized in newsletters or on social media? Look into if there are potential in other marketing channels to promote the products that you previously haven’t tried.

It is important to look into how slow-moving products are exposed throughout your different marketing and sales channels. Before resorting to price reductions or spending money on additional campaigns, many products would sell better with increased attention. Working with cross-merchandizing to expose and recommend products with others can go a long way, online as well as in-store.

Price reductions

Having exhausted other options, new campaigns (not budgeted for in the original marketing plan), markdowns, or permanent price reductions could be considered. These are obviously activities that have larger implications for your margins and would be considered if the need to reduce overstock exceeds the corresponding costs.

If all else fails, stock can be sold to external outlets. This might mean counting a loss on the inventory and should be a last resort, but can be considered if you are in dire need to free up cash. You should also be wary of the effect it can potentially have on your brand and customer loyalty to have your products sold by other actors at substantial reductions.

Reduce overstock with Madden Analytics

Madden Analytics provides an easily navigated cross-channel inventory reporting that you can filter and sort across any dimension. This will give you a good overview of your inventory health and alert you to any issues. It also has built-in functionality that gives you recommendations for reallocation of inventory, product activations, and deadstock prompts. 

The reallocation recommendation lets you know if the sales data indicates that a product would sell better at another point-of-sale. It takes into account if the reallocation would yield too little effect in sales to cover potential costs and only makes recommendations that would be profitable. 

Recommendations for product activations highlight the articles that move too slowly and risk becoming overstocked based on days inventory estimation and what you have reported as your desired stock coverage.

Want to learn about how Madden Analytics can help you work actively to prevent overstock? Leave us your email and we’ll give you a free demo. 

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