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What is excess inventory & how to dispose the excess problem?

3/27/2023

What is excess inventory & how to dispose the excess problem?

1. What is excess inventory?
Some factories, traders, engineer residual materials, or over planned purchasing, project cancellation causes the low turnover rate, these residual are certainly contributed to a sluggish inventory. The definition has differences in different industries, but basically could be sorted into P/O/E/S/Z types, refer to below are explanations:

P: Pipeline, regular inventory, could be run out in 7 days

O: Overage, could be run out in 7- 90 days

E: Excess, could be run out in 90- 180 days

S: Surplus, could be run out in 180- 365 days

Z: Zero, not available to be run out in 365 days

2. What reason causes sluggish inventory?
Let's figure out what elements affect your merchandise to slow moving, and weak the turnover.
① Weak marketing forecast strategy and plans effect extra stoked massive materials, or obsolete parts because of not to dispose in time.

② The factory has accomplished purchasing materials, but their customer has canceled the order during that time, and there is no replacement project could reuse these materials.

③ The return goods of standard error, because of there is no specific qualification standards or requires before the production.

④ Improper material planning, purchased extra.

⑤ Wrong designing aware till ready to start the production, didn't inform or revise the correct purchase plans in time while the designing plan has changed.

⑥ Poor management of the production line, didn't manage to grant, collect, return materials properly.

3. How to handle the sluggish/excess problem?
① Process & design changes
Submit a changing statement to PMC to verify the stocks, transit or forecast materials. The purchaser should inform the supplier to discontinue the materials. Product/Production/Sales/Materials Department should provide the solution to handle these left materials.

② Improper forecast & canceled order
Inform Product/Production/Sales/Materials Department immediately, and communicate the refunds with customer in the meantime.
Improve the forecast and adjust the purchase plan in time.

③ Resell the sluggish materials
You could choose to resell the sluggish materials as bulk clearance or consignment
A. Resell to ultimate buyer directly, but it will take time to find the demand, sell to related professional trading company will be easy and faster.
B. Contract with agency, it takes time to find the buyer, and cost more on commission.
C. Place on auction platform, the highest bid gets the auction, but it may cause strong competition, price will trend down.

4. The best way to dispose sluggish/excess inventory
① Discount sale
If the stock cannot be sold at the cost price, a discount sale could be an option. Special price can bring customers, it's an excellent decision to dispose the sluggish inventory.
② Develop new sales source
For some special materials, it's very necessary to develop a new sales source. For example, using a certain component to maker or education market.
③ Recycling
If the inventory material has expired or can no longer be used for sales, recycling can include returns to suppliers, resell to other firm, or recycle & reuse. The treatment method needs to be selected according to different material characteristics, such as recycling, dismantling, chemical treatment, etc., to ensure that it will not pollute the environment.
④ Donation or charity
For some inventory materials that cannot be sold or recycled, donate them or using them for charity. For example, donate some discarded electronic equipment to a school or charity, so it can be reused.

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