Addressing inventory challenges in wholesale business

Inventory is one of the most affected areas in turbulent times. Getting it right can mean the difference between competing and falling by the wayside.

The ability to pivot and reliably meet demand surges can put companies ahead of competitors in a tight-margin industry. On the other hand, having too much inventory may lead to risks that threaten the bottom line.

Uncertainty impacts inventory

Sometimes, having too much inventory is just a matter of lapsed controls or lack of clear strategy that goes beyond speculation on what consumers might need. However, companies may try to manage excess inventory in response to a variety of business scenarios, such as:

• Supply chains becoming volatile
• Consumer demands shifting with preferences or changes in the economy
• Rising shipping costs
• Inflation—either a decrease or an increase—affecting prices of raw materials or finished goods

Companies often try to stay ahead of these concerns by keeping more inventory. Resilience strategies that involve more redundancy can provide a security blanket for a company, but they can create other issues, too.

Drawbacks of higher inventory

Having enough inventory can position your company to meet orders in a surge, helping keep customers happy and loyal. But knowing how much is enough is key—having too much inventory on hand can have serious drawbacks. Excess stockpiles may become dead weight and lead to cash bottlenecks. In addition, managing more inventory carries the risk of directing precious resources to products that may not turn over fast enough.

Amping up production or the purchase of raw materials, for example, can mean incurring more expenses for labor and procurement that may take a while to recoup, if ever. Costs for storage of the excess inventory can rise, too. There's also the increased potential for waste from theft, spoilage or obsolescence. All these risks can compress profit margins and threaten any competitive advantages that might have been gained by having more inventory on hand.

Considering best practices

How can a business maintain the precarious balance between having enough and too much inventory? Here are eight tips to avoid dead stock.

• Precise sales data analysis: Analyzing past sales data can help you anticipate trends and consumer behaviors. You'll be able to see which products are usually in highest demand and which stagnant.
• Inventory management system: Technology and automation can help you achieve several goals that align with lean inventory control. A technology system suited to your industry and business needs can actively monitor inventory flow alongside consumer preferences and market trends. Data can help you improve supply chain visibility and manage what you have in stock more effectively. You can further tweak your inventory approach to suit your consumer base and avoid waste.
• Just-in-time replenishment strategy: Having less inventory could drive value and efficiency. Strive to pull freight only as consumers need the items rather than stocking items based solely on the speculation. Trimming back stock lowers your storage costs, makes items easier to locate and avoids waste and obsolescence. But make sure to closely coordinate with your suppliers to get timely and reliable deliveries.
• Optimized demand forecasting: Using advanced forecasting models can help you better estimate future demand based on the season, market trends and promotions.
• Sales channels: Consider your sales channels and how they could improve. Diversified sales channels can help you move inventory more quickly to a broader consumer base. Consolidated sales channels can make reconciliation and inventory count simpler and more efficient. Choose the option that makes the most sense for your wholesale business.
• Promotional offers and sales: Planning promotions and seasonal sales can encourage consumers to buy less popular products to help liquidate excess inventory. If you have data on shopper's preferences, use this to send customized sales emails.
• Strict stock rotation management: Rotating stock ensures that older products are sold first, minimizing the risk of items becoming obsolete or expiring.
• Collaboration with suppliers: Negotiating flexible terms with suppliers can help you adjust orders based on needs. You may be able to give unsold stock back to suppliers, and sharing your sales data with them can help them better plan for production. It can also help to diversify your suppliers so you have backup sources when needed.

An adaptive, technology-driven approach to inventory management can help your company rise to meet challenges in wholesale business. Prioritize the outcomes you want to achieve. Discuss with your banker how investing in financial management systems or tools can help you achieve your goals.