Evacuating excess inventory: Marketing Management

Having an increased amount of inventory in warehouses can be very detrimental. It has an adverse impact on the morale of the whole company. The workers feel that they have produced something that they cannot sell.

Excess inventory also increases the holding cost. Plus a shortage of space is generated, meaning, you cannot store other products. This prevents the company from building up inventory of other fast moving goods, thus hampering the profitability.

Inventory held for long time deteriorates in quality. Products like cements have a very short shelf life and if stored beyond a few months, would become unusable. 

Technology products too face an obsolescence cost.

There are a variety of ways to reduce the accumulated inventory.

1. Pay As you use:

This method can be suggested to big buyers. The company pushes out its inventory to the buyers warehouse without asking for a payment. After a period, the company sends a person to take measurements, and based on them, the buyer has to pay according to the inventory he was able to sell.

This is a quick way of doing distress sales. The buyers are interested as they don’t have to pay upfront and hedges them from future supply disruption. They would have to pay only for the sales that they can make, thus hedging their forecasting risks.

This model is not very popular in industry, as the company does not get immediate cash flow, but is quick and effective way to evacuate inventory in a short time.

 

2. Promotions:

This is a short term measure to temporarily increase the sales and clear out old stock. But we should also address the root cause of the problem. The sales and manufacturing departments should coordinate effectively to run a successful promotion.

 

3. Bundling:

Bundling a slow moving product with a fast moving product also helps clear the stuck inventory. It can be suggested to small retailers. Slow products that are still within their expiry dates can be cleared out in this way. In retail, we have seen many examples of this strategy with: buy one get one free deals.

4. Match Supply and demand:

This is the core reason why inventory builds up. If the production does not stop when the sales have lagged behind, an inventory build-up will occur. So proper coordination between the sales and production teams is necessary to ensure a smooth flow. The forecasting department should also function effectively to prevent this issue.