Warehouses are stacked sky-high. Why? How? And what do we do now?
What is Overstock, and Why is it a Problem?
In the simplest of terms, overstock is when a company manufactures more product than customers wish to purchase. This causes a disruption in cash flow as well as warehousing and distribution strategies. In the first quarter of this year, Walmart reported a 32 percent increase in inventory. With an overstock problem that big, not only does it mean that revenues aren’t being met due to customer purchase decline, but it also creates an issue where the business is forced to spend more capital on prolonged storage of the product or else deal with losses due to expiration or exposure.
What is Causing Retailer Overstock Now?
After quarantine ended and most of the population was comfortable leaving their homes again, there was a huge spike in economic activity. At the same time, supply chains had not fully ramped back up to pre-COVID levels, making sought-after goods scarce. Paired together, these situations created massive price inflation, which the federal reserve applied pressure to by increasing interest rates.
Now many American families are unable to consume at their typical levels and are waiting for prices to normalize. But supply chains are finally catching up with what used to be long lead times for orders. With so much stock arriving and little leaving the stores, many businesses are piled high with overstock.
When Can Retailers Expect a Return to Normalcy?
Unfortunately, there isn’t much of a reprieve in sight. The U.S. Department of Agriculture has announced that food prices are expected to increase by 9 percent in 2023—well above the decades-long historical average. And food prices aren’t the only thing going up. If a business doesn’t take action now, its overstock is liable to grow and create compounding issues all along its supply chain.
How Can Supply Chain Planning Help in the Meantime?
It’s likely you’re already feeling the effects of overstock, but that doesn’t mean you’re doomed. Here are some actions you can take to alleviate the problem now and create a plan so it doesn’t happen again:
- Improve Your Consumer Demand Forecasting — In times of cultural and economic abnormalities, having the ability to predict consumer spending habits beyond your historical averages is key. Get some logistics planning tech on your side if you don’t already.
- Re-Evaluate Your ABC Priorities — It’s likely your business has a sense of its most popular products and great add-ons to suggest to customers during purchase, but that’s also probably based upon more typical consumer spending habits. In lean times, these are likely to change, and having the right products available will be key to limiting overstock on those that aren’t making the cut.
- Make the Leap to Just-in-Time — Just-in-time supply chains minimize your need for stock on hand by pairing demand forecasting techniques with great inventory management. For now, it can help minimize costs for products that are moving while you wait for your backstock of others to sell, and it can help you safeguard against future overstock.
- Recalibrate Your Supply Chain Automations — Many companies using supply chain automation have them set for high consumer demand and long lead times for product. After evaluating your priorities would be a great time to create a new series of automations to ensure you’re meeting the updated needs of the public while keeping your customer, manufacturer, and supply chain in sync.
The circumstances that have led to the overstock issue are likely to continue for quite some time, but that doesn’t mean your business will continue to drown in its own product. Choosing the right 3PL partners to ensure you’re prepared for customers while limiting liability can make a huge difference in your business’ success. Want to learn more about how to modernize your supply chain? Reach out to our team of just in time experts.