Why Keeping Too Much Inventory on Hand Is Bad for BusinessPosted on October 10, 2022
In June, trade and manufacturers’ inventory in the U.S. increased by 1.4%. But inventory growth did ease for merchant wholesalers. Too much inventory could make or break your business. Running a business requires you to stay organized and only have what’s necessary to keep expenses down. But why is it bad to keep too much inventory on hand? Read this guide to find out the answer to this question and organize your business today!
Inventory That’s Unnecessary
Products will decrease in value over time. Sell inventory while it’s new to the market. Even if it’s at a lower rate than you’d like, it’s better than becoming obsolete. Sell perishable goods at a lower rate before they expire. If not, you could have many items that won’t sell.
High Insurance Premiums
The items you’re storing will be covered by insurance. The more items you have, the higher your insurance premium. The longer you have items, the more you’ll pay over time.
Warehouse inventory control is vital to save on space. Pay attention to how much space your items take. Avoid buying an excess of items that consumers might lose interest in. Move older items into a different part of your location. Try to sell these items by updating your blog, taking new photos, etc.
Hurt Cash Flow
82% of small businesses fail because of inconsistent cash flow. Too much inventory could hurt your cash flow and business. You might invest in your business by buying a large number of items. Your sales aren’t as high as you’d wanted. Once your money sits in products, it ties up your cash flow. Day-to-day expenses might hurt. Consider sales events to increase cash and traffic. Whether it’s a store-wide event or flash sales, it could help you decrease your supply.
High inventory levels could mean that you don’t have the option to buy new products. Customers want new items, and with limited cash, you might be unable to reach this.
Higher Storage Costs
Storage prices will increase the more items that you have. This could include inventory control, storage costs, audits, and more. Densely populated areas could be even higher.
If customers don’t find trendy and up-to-date items, they could take their business elsewhere. If this happens too much, you could permanently lose some customers.
Items that aren’t trendy anymore or are perishable might need to be thrown out. You’ll lose the money that you invest into the product, will make no profit, and might have to pay for proper disposal services.
How Much Inventory Do You Need?
Pay attention to the turnover ratio. A high turnover ratio means that your products sell fast. Consider how much it costs to produce each item. This could include the overhead and labor too. Products with higher costs of goods sold will require a larger turnover ratio. Replenishment is also a factor. For items that’ll take longer to receive, you might need to order them sooner. Keep records of how many products you sell each quarter. Consider when products will be replaced by a newer version.
Audit Your Inventory
Count your inventory regularly to check the amount of inventory you have. If you have a supplier, take a look at their overall grade. You might want to cut suppliers loose that are short on your orders or late with deliveries. Consider how many items sell each week and monitor this. Next, be consistent with your stock. You might be confused about orders coming in without keeping track. Ensure that all boxes are unpacked, verified, and counted. Analyze the inventory of your sales. Pay attention to items that only sell seasonally. Think about your best-selling items and how many items you should buy. Restock items yourself instead of relying on the vendor. Understand how and where items sell. Consider warehouse inventory software to help you keep track of your items.
The Risk of Natural Disasters
Items could be destroyed by floods, fires, or other natural disasters. Having fewer items will mean that you’ll incur less in damages.
Hurt the Environment
Hurting the environment could negatively impact your business since many are passionate about this. If word got out, it could damage the reputation of your company. Inventory has a carbon footprint since it takes water and energy to create. Carbon emissions increase, and manufacturers could waste resources. Any excess would wind up in a landfill. Avoid creating excess waste whenever possible and only create what you need. Plan your product and inventory needs in advance. Check for seasonal trends and look at past sales reports before you buy items.
Higher Costs Overall
You’ll need more employees to maintain, audit, and manage the items. When items depreciate, this could mean a loss in profit. Insurance, maintenance, utilities, and rent prices could increase. Move excess products to your store’s floor. Check out cross-merchandising opportunities, create new displays, etc.
How Too Much Inventory on Hand Could Hurt Your Business
After exploring this guide, you should better understand how having too much inventory on hand could hurt your business. Plan ahead and decide what products you need and don’t. Try to avoid buying many items if you’re not sure they’ll sell. Are you running out of room and wish there was a convenient location to store your items?
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