When does stockpiling a product become an inventory pileup? When your product collects dust on the storeroom shelf. Call it pileup, call it overstock, but when you hold too much inventory, you lose money. Fortunately, you can limit the risk of overstocking (and its cousin, stock-outs) with the right inventory management tools.
Unexpected Windfall
Of course, retailers can’t prepare for every contingency. For example, look at what happened in the US. In July, retailers saw their biggest month-to-month sales increase since the Christmas shopping season. This followed on better than anticipated spending in May and June as US consumers raised their discretionary spending.
One economist says “American shoppers flocked to the malls” in July, a surprise in itself considering we’re in the middle of a “Retail Apocalypse.”
When Inventory Pileup is Not a Pileup
The July increase was 4.2% higher than the same time last year. It was the culmination of two months of higher-than-expected sales, and retailers responded by raising their inventories.
The .5% uptick in stockpile meant retailers had good reason to expect the spending to continue. This is particularly true as the North American summer winds down and students prepare to head back to school.
Businesses apparently haven’t expected such good times since last November when inventories went up by .9% to prepare for the Christmas shopping season.
Thus, when there’s a reasonable expectation that a business will sell more, an increase in stock is not an inventory pileup. It’s just good business.
Get Your Stock Levels Just Right
On the other hand, when expectations don’t match the reality, inventory pileup will cost a business money. Excess stock sucks up cash flow and often leads to markdown sales.
The broad rule is to stock up on items according to anticipated sales based on the best estimate of demand in a particular period.
Businesses need sales and inventory data, both real-time and historic, to optimize stock levels for each of their channels.
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