Entrepreneurs

4 Ways to Reduce Inventory Waste

In the fashion industry alone, unsold inventory is a $50 billion headache for retailers–and that figure was from before the pandemic struck. That’s a pricey “ouch” that’s also carries environmental consequences.

So what’s the underlying problem with inventory? Put simply, inventory can get out of control pretty fast. Even when you adopt lean manufacturing tenets and keep accurate inventory counts, you can still end up with excess. And that’s hard on the corporate wallet, whether you’re paying for inventory with cash or via attractive terms.

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Whatever the size of your company, you can adopt practices to rid yourself of inventory waste. The following tips will help ensure your inventory doesn’t sit long enough to become a permanent (and highly unwelcome) fixture.

1. Order smaller batches of raw materials or ready-to-sell items.

The old way of doing business suggests that you should buy enormous batches of whatever you need. Why? Think “economies of scale.” While it’s true that purchasing in bulk drives down unit costs, you could end up paying much more in the long run. After all, if your inventory ages, you’re not getting any value on the back end for front-end frugality.

Fortunately, technology is making on-demand, small-batch manufacturing possible in a range of industries. Print-on-demand supplier Gooten reports that the delivery of products through just-in-time “cloud manufacturing” processes is projected to be a $112 billion market by 2024. This means you can get out of the habit of buying big when small or mid-sized batches will do.

2. Get transparent with customers about your available and remaining inventory.

Have you been to Overstock.com as a consumer lately? The site has a particularly revealing practice: It lets you know exactly how much inventory remains. This tactic lights a fire under interested customers’ feet to make purchasing decisions. It also forces the company to track its products consistently and keep tabs on what’s hot–and what’s lukewarm.

In order to track your inventory, you’ll need to invest in high-performing software that will allow you to monitor metrics like inventory turnover ratio and sell-through rate. The right tech solution will show you which products are languishing on your shelves and which are flying off them. Historic sales data will also tell you whether it’s worth restocking a sold-out item immediately. By enabling you to optimize your stock mix, any money you spend on technology will pay for itself over time. 

3. Test the popularity of new products before buying stock en masse.

You’re thrilled to introduce the latest product in your lineup. All marketing research points to it being a winner. But before you sign on the dotted line for a boatload of inventory, think twice. Could you possibly order a smaller amount, just to perform a real-world test run?

It’s easy to get so excited about an up-and-coming offering that you forget it might fall flat. Or something might sidetrack your sales–like a global pandemic that no one saw coming. Prove your concept first, then decide whether you have the audience interest to warrant a larger purchase. Your supplier might not love your decision to scale back initially, but your CFO will.

4. Use clearance events to your advantage.

One of the fastest ways to clear off your shelves without literally throwing away merchandise is to hold clearance sales. These can happen in-store or online. Work with your pricing specialist to determine how low you can afford to go. Then, push your clearance everywhere.

Of course, your goal probably isn’t to have massive clearance events all the time. Nonetheless, hosting one every so often frees up your storage capacity. It also puts some dollars into your account, which helps recoup something.

You can’t avoid dealing with inventory. Yet you can avoid letting it take on a life of its own and causing tremendous levels of waste. Work on helping your inventory stay in motion, which will keep it from weighing you down. Remember: Like the headache you get from thinking about it, you want inventory to be here today and gone tomorrow.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

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