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How Does Your Team Handle Surplus Inventory?

Posted 02.16.2024

Once the year ends, many distributors find themselves facing the challenge in needing to sell surplus inventory that hasn’t moved. How can you effectively manage excess stock and turn it into sales?

We asked Ted Henry, from Rubber Tree Systems who manages the WarehouseTWO inventory sharing platform, to share his valuable insights on what works and what doesn’t when it comes to getting rid of surplus inventory.

Drawing from his personal experience as an operations executive at a fluid-handling and process control components distributor, it’s clear that conventional approaches often fall short. Here are three behaviors that typically don’t yield significant results:

1. Relying on Price Reductions: Lowering prices on surplus inventory rarely leads to increased purchases, as industrial customers typically buy only what they need. Offering discounts may prompt them to buy sooner, but not necessarily more.

2. Lists with Distributors: While it may seem logical to offer surplus inventory to other distributors at attractive prices, this approach often yields minimal response. Many distributors prioritize other aspects of their business over seeking out surplus stock.

3. Engaging Sales Staff: Even incentivizing salespeople to sell surplus inventory doesn’t always lead to success. Sales teams prefer focusing on ongoing business or larger projects, making selling surplus inventory a low priority.

In essence, the key to eliminating surplus inventory lies in matching existing demand with available supply. Here are five innovative methods that have proven effective:

  1. Substitution Strategy: Review new backorders daily and offer surplus items as substitutes at irresistible prices. By enticing customers with lower prices and faster delivery, you increase the likelihood of them switching to the substitute item.
  2. Negotiate with Suppliers: Timing is crucial when negotiating with suppliers for inventory returns or exchanges. One week before the end of the supplier’s fiscal quarter is optimal, as they’re more inclined to accept returns/exchanges in exchange for a large, timely order.
  3. Product Reconfiguration: Transform surplus items into more active products by reconfiguring or disassembling them.
  4. Dedicated Inventory Management: Assign a dedicated team member to focus solely on managing surplus inventory for a set period. Motivated by incentives and empowered with freedom, this approach often yields positive results.
  5. Inventory-Sharing Networks: Joining inventory-sharing networks, such as WarehouseTWO, allows you to connect with like-branded distributors and match surplus inventory with demand from other distributors. This tool was created specifically to help distributors increase product availability and move excess inventory. You’ll be surprised by how much of your inventory is another distributor’s critical backorder.

By implementing these strategies, distributors can efficiently manage surplus inventory and optimize cash flow. For further insights or assistance, Ted Henry offers expertise on the “excess inventory cleaner” role and the benefits of participating in inventory-sharing networks at WarehouseTWO. The key takeaway here is that proactive and innovative approaches are essential for effectively handling surplus inventory and maximizing profitability in distribution businesses. Curious how this could work for your business? Free free to set up some time to connect and learn more.

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