Reduce Waste and Warehouse Clutter: How to Stop Overstocking
We all know the hassle created when something in your warehouse is out of stock: delays, administrative stress and, ultimately, unhappy customers. So, it stands to reason that we should avoid understocking at all costs.
Unfortunately, things aren’t quite that simple.
Overstocking is an insidious warehouse management error that can end up costing your business big time. Read on to get the inside scoop on overstocking: what it is, why it happens, and how you can avoid it.
What is Overstocking?
Overstocking occurs when a business purchases more product than is sold, leading to a buildup of extra inventory in their warehouse or storage facilities. Over time, leaving so much stock on the shelves can hurt a business’ profit margins.
What are the Causes of Overstocking?
Overstocking can be caused by a number of factors in your business, and knowing the cause for warehouse overstocking is an essential step towards fixing the problem.
The first common cause is misjudging customer demand for a particular product. When you predict a high demand and stock high levels of a product in your warehouse (only for it to sell poorly), then you will be faced with an overstocking situation.
Another common cause for overstocking is the fear of understocking. It’s human nature to do things ‘just in case’ and we intuitively understand the drawbacks of understocking far better than overstocking. Better more than less, right? This has become more of a factor in the last few years, where COVID and other world crises have made supply chain interruptions the norm. Many businesses believe that a slight overstock is safer than being faced with large delays —but this solution is only a band aid on the bigger issue of supply chain visibility.
Finally, an overstocking problem might be as simple as poor inventory management. With many warehouses still relying on manual processes, it can be easy for excess stock to fall through the cracks.
Why is Overstocking So Bad?
Over time, overstocking can be seriously costly to your business.
Firstly, overstocking increases your storage costs. By paying to store goods that won’t be sold (not to mention the cumulative labour costs of counting and maintaining the inventory), your business can haemorrhage substantial amounts of money over time. And don’t forget — if you’re stocking perishable goods like food, beverages, or pharmaceuticals, then overstocking can lead to product expiration and obsolescence: further magnifying the increased costs created by overstocking.
Ultimately, overstocking (even minor overstocking) is a symptom of a more serious issue with your supply chain or inventory management processes, and keeping extra stock in your warehouse isn’t a long term solution to those problems.
3 Top Tips to Avoid Overstocking Your Warehouse
1. Reduced cost
The first step to overcoming an overstocking problem is to do something with the excess stock. Ideally, you want to be able to make a small profit on extra stock (or at least avoid losing money). This is reducing items to clear makes sense as a business strategy: by reducing the asking price, customer demand for your product is likely to increase — allowing you to offload some of that overstock. Only dispose of products as a final resort (such as if they are expired, or storage costs are very high), as disposal prevents you from making any money back on the items.
2. Analyse Market Trends
With better knowledge of customer behaviour and market trends, it is easier for businesses to accurately predict future demand for products — leading to more accurate stocking decisions. This can also help businesses sideline their fear of understocking by empowering them with knowledge of market behaviour.
3. Improve Inventory Management
Excellent, data driven inventory management is the real long term solution to avoiding future overstocks. Compared to a manual system of warehouse management, a warehouse management system (WMS) can help you better keep track of current inventory levels, improve product tracking, and get full visibility of your warehouse.