5 Dec 2022

How to Prevent Overstocking

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How to Prevent Overstocking

Whether you own and operate a traditional brick-and-mortar shop or you run an online storefront, your inventory is the bread and butter of your business. Having the right amount of inventory is critical to your success. While you certainly want to make sure that you have enough adequate stock levels to meet the needs of your customers, you don’t want to have too much excess stock. Overstocking inventory can lead to surging storage costs when customer demand is low. Keep reading to learn how to prevent overstocking.

How to Prevent Overstocking

Sure, you could always try to mark down the price on the excess product, but selling overstocked products at a discounted rate can hurt your bottom line. Keeping overstocked products in storage and trying to sell them at a future date can once again lead to higher storage costs. On top of that, there’s a chance that those products won’t be in-demand at a future date and you’ll end up having the same problem with the excess inventory.

Holding optimal inventory levels requires careful consideration and calculations. How do you find the balance between having enough inventory on hand so that you can fill the orders but also limit excess inventory? Here are some tips to keep in mind.

Inventory Management Software

Many small businesses use manual methods to track their inventory, which can result in errors, or a failure to track inventory altogether. If you fit into either category, inventory management software would be a worthwhile investment.

Inventory management software is specifically designed to help you properly manage your stock so that you can avoid overstocking and understocking. It’s a highly effective tool and there are several affordable, easy-to-use options available.

ABC Analysis

Another effective way you can avoid overstocking is by implementing the Always Better Control (ABC) analysis. This method of analysis is centered on the popular 80/20 rule, which states that 20 percent of the products you carry contribute to 80 percent of your revenue.

  • “A” represents the highest priority products or the inventory that sells the best and is the most profitable.
  • “B” refers to medium-priority products that sell consistently and that you order on a regular basis, but not as frequently as high-priority products.
  • “C” is for the lowest priority products that are commonly stocked in high amounts to prevent the need for regular reordering.

Point-of-Sale (POS)

A point-of-sale system is another highly effective tool that can prevent overstocking. Implement a system that features data tools that allow you to access key pieces of data quickly, such as types of sales, consumer profiles, categories of products, amount of product remaining, and even alerts when inventory levels are at a reorder point.

There are several well-designed, easy-to-use POS systems available. For the best results, opt for a POS system that is equipped with sales tracking and generates inventory management reports.

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