When you’ve got a pileup on the highway, there is a lot of cleanup to do. When you’ve got an inventory pileup, there may be less damage to your physical space, but the impact on your bottom line can be costly.
There’s a record number of inventories sitting on shelves right now. The Federal Reserve Bank tracks private inventories in various industries. In retail, there are more than 673 billion dollars of seasonally-adjusted goods in stores and warehouses. Not all of it is flying off the shelves.
What is Inventory Pileup?
When you store inventory that is not being sold, it ties up capital that could be used for something else. Inventory pileup means you’ve got goods that are collecting dust and taking up space on your shelf that could be used for more valuable inventory elsewhere.
Besides typing up cash in overstock, there are other dangers from inventory pileup.
When you’ve got an abundance of products to store, you need more storage space to hold it. Warehouse space can be expensive. There may be additional costs for financing or manpower to move products in warehouses.
When you have an inventory pileup, you run a greater risk of spoilage or obsolescence. Perishable goods must be sold before they go bad. Non-perishable goods that have electronics or digital controls can become outdated quickly.
Customer demand and trends change rapidly. You could get stuck with products that consumers no longer want to buy. As consumer habits change, aging inventory often gets older.
Tim Cook, CEO of Apple, has a unique way of looking at inventory. “Inventory is fundamentally evil,” he said. “You kind of want to manage it like you’re in the dairy business. If it gets past its freshness date, you have a problem.”
Inventory pileup caused significant problems in many industries – not just retailers. Auto dealers this past year had an unusually high number of aging vehicles on the lot at the same time new models were arriving. At one point in 2019, nearly 4.2 million cars and trucks were sitting on car dealership lots. This led to cash flow problems for some dealers in the wake of rising floorplan interest rates and forced dealers to dramatically discount inventory. For new cars, a dealer may have to pay $10 in interest for every day the car sits on the lot until it sells. That stacks up pretty fast when you’ve got inventory pileup.
For retailers, there may not be holding costs or interest payments for inventory, but it still takes up valuable warehouse space. And, if you are paying interest for product financing, you’re paying more every day a product sits on the shelf.
What Causes Inventory Pileup?
There are several reasons you might have an inventory pileup, although it’s most often a result of poor demand planning or lack of reporting/forecasting data.
Some suppliers engage in what’s known as channel stuffing or trade loading. Despite a lack of demand, suppliers offer substantial discounts to entice sellers to overbuy. In some cases, it’s an unethical practice used to pump up supplier financials.
There are also market forces at play that are outside of your control. While there’s not much you can do about these changing market conditions, there are things you can control to help avoid an inventory pileup.
Failing to track returns accurately and in a timely way can also lead to inventory pileup. Returns have become a big part of the business for warehouse operations and eCommerce sellers. Nearly a third of all products ordered online (30%) are returned to stock by customers. An inefficient system is going to leave a lot of merchandise unsorted, uncounted, or adding to the pileup.
3 Reports That Can Help Avoid Inventory Pileup
You ordered too much and it’s not selling. So, how do you avoid that?
An efficient inventory management system is crucial to managing the flow and avoiding inventory pileups. These 3 inventory management reports from SkuVault can help you minimize inventory pileup and manage your pipeline more efficiently:
1. The Replenishment Report
2. The JIT (Just in Time) Report
3. The Forecasting Report
Report #1: The Replenishment Report
The SkuVault replenishment report details inventory levels to help you make smarter and faster purchase decisions. It pulls together data from other reports, such as reorder, replenish, and assembly. Examining sales forecasting, reorder point, and maximum/minimum order quantity (MOQ) with these data points can help you determine what inventory is moving and what’s getting stale.
The replenishment report can help you maintain inventory levels without over-ordering. You can set manual rules that allow you to automate systems. For example, let’s say you know that you always need 20 of a particular SKU in stock, the replenishment report will notify you when you fall below that number to manage reordering. If you have overstock in one warehouse, but a shortfall in another, the replenishment report lets you create an order to move products between locations.
Use the replenishment report to set and adjust your automated ordering process. By using rules-based auto replenishment, you can reduce administrative costs, keep the proper level of inventory, and simplify the entire procurement process. It also helps increase your cash flow by giving you better insight into how to spend your inventory dollars and can increase margins by reducing obsolete inventory and write-offs.
Report #2: The JIT (Just in Time) Report
The concept of Just in Time originated in Japan. Due to the country’s limited natural resources and small size, there was little room for waste. In retailing, keeping the minimum product you need on the shelves and ordering the rest just-in-time can save money. With the right management system, selling products before having to buy them can significantly increase the cash flow while lowering inventory holding costs. It can also reduce dead stock. There’s less risk you’ll get stuck with products that aren’t selling.
Doing JIT correctly means you have accurate demand forecasts and a firm understanding of buying habits to avoid overstock or shortfalls. The Just in Time report can help you manage the stock, materials, and assembly in your pipeline to meet customer needs without inventory pileups.
Just in Time ordering is also sometimes called the pull-off replenishment method. The product is bought or produced and then shipped only if it is sold. It can be beneficial, but it also means keeping a close eye on production schedules, shipping schedules, and forecasting demand.
Historical data for projections can be helpful in predicting future demand, but it’s easy to over-rely on this data. History isn’t always an indicator of future sales. While it should be one of the key indicators, it should not be the only tool used to project sales. Using real-time data that is reflective of what’s happening now is more reliable. Pull-based replenishment based on the actual order information, for example, can be used as a trigger for future ordering, production, and replenishment.
Report #3: The Forecasting Report
In eCommerce, products can be short-lived, and demand can be erratic. SkuVault’s forecasting report can help you manage supply and demand in efficient terms.
The forecasting report can show the minimal amount of inventory you need to have on hand to make sure that the minimum number of customers will suffer from a stockout. It can also help you avoid too much stock sitting on the shelves.
Properly sizing your inventory, especially in advance of peak seasons when demand is highest, can be the key to meeting your financial goals. If you have too little product on hand, you may miss a significant opportunity. If you have too much product on the shelves, you are tying up cash you could have put into other products that are selling better.
Updating and analyzing forecasts frequently can help retailers react more quickly as consumer buying habits change. It can help uncover opportunities to move faster than the competition. Opportunistic replenishment models can be employed to move inventory to picking locations as demand increases. This can be especially helpful when speed is crucial. For warehouses with smaller pick faces, it’s even more important to have the right inventory available when it’s needed.
Inventory Management and Reporting Are Keys to Success
These reporting tools can help you spot trends and adjust on the fly. With real-time reporting, you will see when changes occur and act to take advantage of trends.
When product sales start to slow, it may be time to lessen inventory levels. Conversely, when sales are climbing, it may be time to boost the levels on hand or work to cut production times.
Reporting can also help you assess whether you are meeting your inventory KPIs and where you need to adjust to avoid inventory pileup.
Death Piles and Dead Stock
During peak seasons, this inventory pileup can cause all sorts of additional problems downstream. Pileups of products that aren’t selling are taking up valuable inventory space. Besides the expense associated with storing it, it may cause problems in the picking process when pickers must work around this dead stock in the warehouse. The alternative is moving it out of the way, which takes time and manpower. In the industry, they call these “death piles” – where products go to die. Many warehouses have whole sections of death piles that only get cleared out once a year in either major markdowns or liquidations.
Without a robust inventory management system and reporting tools, things can get lost in the system. When you consider that 60% of an average company’s SKU’s are inaccurate, it’s easy to see how death piles can linger on for years – tying up space and capital.
The Benefits of Efficient Inventory Management
It’s common sense that the better handle you have on your inventory, the better job you can do at managing. You can keep from understock or overstock situations and you can manage the flow more efficiently.
It’s also one of the keys to improving profitability. A study by Deloitte tracked more than 400 companies in the supply chain. The companies that had better inventory turnover and efficient on-time deliveries rated substantially higher than their competitors in terms of profitability. Of the top performers, 79% had significantly above-average revenue growth and 69% had significantly higher EBIT (Earnings Before Interest and Taxes) margins.
The more sophisticated companies employed inventory management tools to drive the workflow. From procurement to production to stocking and delivery, every step was monitored and analyzed to increase system efficiencies.
Competing in an Amazon World
There’s no question Amazon has changed the landscape when it comes to retail – both online and offline.
Amazon has built a foundation that puts customers at the center. They have continually invested in ways to improve the customer experience and create efficiencies.
“If you don’t understand the details of your business,” Amazon founder Jeff Bezos said. “You are going to fail.”
Bezos recognized early on that the balance of power shifting away from businesses and towards consumers. Understanding the details of the business and applying it in efficient ways to deliver a superior customer experience, Amazon has become the world’s largest online retailer.
The so-called “Amazon Effect” has conditioned shoppers to get a frictionless shopping experience where they can compare multiple products, brands, and price points instantly. One-click purchasing, free shipping, and two-day delivery and – in some locations – two-hour delivery have created an almost impossible standard for other retailers to meet. Yet, it has now become a customer’s expectation when they shop online.
Using inventory management systems, warehouse automation, and robust real-time reporting is essential for any eCommerce seller to operate in an Amazon world. If you are an FBA seller or using Amazon to move your products, you need to meet the quality standards the company mandates. If you are a competitor or selling across multiple channels, you still need to deliver a customer experience consistent with their expectations.
While we often think of out of stocks as the biggest problem since there are ready buyers that we can’t fulfill, inventory pileups can do damage too as they limit our efficiency and tie up capital that could be used to replenish the items that are selling better.
SkuVault Provides Powerful eCommerce Inventory Visibility and Reporting
SkuVault is designed to provide eCommerce retailers with complete visibility and insight into the complete inventory journey from acquisition through fulfillment. Better data and greater inventory visibility help you make better business decisions.
- Maximize sales with accurate forecasting
- Make better purchasing decisions with detailed reporting
- Know where your inventory is every step of the way
- Manage eCommerce inventory across marketplaces with full transparency
Managing inventory across multiple sales channels can be complex and difficult. It’s easy to have shortfalls or inventory pileups if you aren’t managing it efficiently. SkuVault’s eCommerce inventory management software lets you sync all sales channels and manage reporting in one place. Systems create better pick, pack, and ship processes to keep the inventory journey flowing. SkuVault’s inventory management system and warehouse management system provide deep insight to improve efficiency.
- Utilize inventory management system features for well-rounded warehouse organization
- Increase picking speed with digital picklists like Hyper Picking and Interactive Wave Picking
- Reduce picking errors and achieve higher ROI
By using our automated eCommerce inventory processes, eCommerce sellers can reduce inventory mistakes that are caused by a manual error.
- Never oversell again
- Avoid incorrect shipments with better Quality Control
- Utilize barcoding to reduce risk from manual data entry
- Maintain marketplace quantity accuracy with Quantity Buffers
- Sync marketplace quantities in real-time
Contact SkuVault today to schedule your personal demo and let us show you how we can help grow your business and maximize your inventory.