Less Overstocks, More Sales: 3 Proven Tips to Balance Your Inventory

Chief of Staff and Interim COO @ Flieber

Every day, in every media outlet, you’ll see articles discussing retail companies with overstock inventory. Even large brands are still working to balance their inventory levels post pandemic, with 66% of owners and executives reporting overstocks.

To solve this problem, brands often fall back on what they do best: drive more sales.

Markdowns, promotions, and clearance sales are the default methods for offloading excess inventory. But these approaches can have a major impact on your margins.

The truth is, profitable scaling starts long before the point of sale. And poor inventory planning could be preventing you from reaching your full sales potential.

To avoid overstocks and free up more capital to invest in activities that drive increased sales, effective inventory management is the best place to start. In this article, we’ll reveal common misconceptions around overstock inventory, plus practical ways to prevent it moving forward.

Preventing overstock inventory

What is overstock inventory? A persistent problem for modern brands
What causes overstocking in inventory management?
How does overstock inventory impact your business?
3 steps to prevent overstock inventory

What is overstock inventory? A persistent problem for modern brands

Overstock inventory, also known as surplus stock, is any inventory a brand purchases or accumulates beyond what it can sell. This excess stock can lead to costly storage fees and reduced working capital that could otherwise be used to generate more sales.

Overstock isn’t the same as safety stock, which is a predefined amount of extra inventory that brands may keep on hand in case of emergencies. Safety stock is carefully calculated as a last resort to avoid stockouts, while overstocking is the result of miscalculations that lead to too much stock.

Overstocking vs. understocking

While overstocking involves purchasing and holding too much inventory, understocking is when you don’t have enough inventory to meet customer demand. Understocking can lead to stockouts, sales losses, and reduced brand loyalty.

Overstocking often occurs as a reaction to losing sales due to understocking. After the pandemic left store shelves empty, many retailers and DTCs turned to overstocking in an effort to avoid losing customers. In the years since, not everyone has been able to adjust their demand planning methods to break the habit of ordering too much inventory.

Many retailers are finding that the textbook “just-in-time” model no longer applies to the new reality of global commerce. For a profitable business model that can weather any storm, you need better tools for tailoring your purchase orders (POs) and moving from “just-in-time” and “just-in-case” to a “just-the-right-amount” model.

Too much stock or not enough? Balance your inventory and maximize your sales with our straightforward guide to calculating your inventory to sales ratio.

What causes overstocking in inventory management?

Besides over-ordering to avoid stockouts, there are a number other ways business owners and inventory planners may inadvertently cause overstocks.

Here are some of the most common causes of overstock inventory:

Poor inventory management: If you’re distributing the wrong amounts to the wrong sales channels or operating on a lagging replenishment schedule, you may find yourself compensating with overstocked items.

Insufficient marketing: If you order extra product ahead of a major sales event, but your marketing efforts don’t perform as expected, you could be looking at a high quantity of extra stock.

Supply chain volatility: If you can’t move product or you over-order to compensate for supply chain disruptions, you could wind up with too much inventory sitting in storage racking up fees.

Innacurate demand forecasting: Error-prone Excel spreadsheets with static formulas often result in rough calculations that lag behind your latest sales data, resulting in inaccurate predictions and order quantities.

Inadequate seasonal forecasting: If your demand planning system treats last year’s surprise stockout as an annual event, or fails to account for yearly date changes in shopping events like Prime Day, you could end up in a vicious cycle of making the same miscalculation all over again.

Lack of visibility: Without real-time visibility into your inventory and supply chain, you can easily underestimate the amount of stock already available at each storage location.

To stay profitable and keep sales flowing, brands focus on solving these inventory puzzles, rather than trying to triage overstocks after the fact through discounts and marketing.

How does overstock inventory impact your business?

Overstock inventory is an expensive problem to have. A 2023 IHL Group study found that overstocking costs retailers $562 billion worldwide.

Here are some of the consequences of overstocking in retail:

High storage costs: With more retailers holding excess inventory, there’s increased competition for warehouse space. Prices and interest rates keep getting higher for every square foot required.
Decreased or frozen working capital: When your capital is tied up in overstocks, you lack the cash flow to invest into other profitable avenues like marketing, exploring new sales channels (like Amazon, Shopify, Walmart, or eBay), securing new inventory, or launching new products.
Obsolescence and expired products: If you sell perishable goods, on-trend items, or seasonal goods, you may never have another shot at selling your excess stock.
Stockouts on other SKUs: When your storage and capital are eaten up by overstocked products, it becomes harder to replenish your products that are moving. This can lead to a situation where you’re overstocked on some products and out of stock on others.
Passing increased inventory costs on to customers: 44% of companies say they’re passing increased warehousing and labor costs to their customers. The more excess stock you hold, the more likely it is you’ll be forced to make your customers eat the cost — if they don’t turn to your competitors first.
Disruptions to other sectors: Brands and retailers holding excess inventory may be inadvertently harming suppliers, manufacturers, and transportation companies. Overstocking can mean decreased production orders and demand for transport. Over time, there’s a ripple effect that hurts profit margins in these sectors too.
Liquidation costs: In all cases, you incur the costs of offloading excess items, whether through selling to liquidators, promoting markdown products, or donating or disposing of excess items.

Perhaps the biggest consequence of all is that overstock inventory can easily lead to a vicious cycle that consistently drains your profits. Over time, continued poor forecasting keeps you trapped in a loop, always trying to offload excess inventory at a loss.

3 steps to prevent overstock inventory

To prevent future overstocks from eating into your sales and margins, focus on the following six areas, known as the six “rights” of profitable inventory management:

The Right PRODUCT: Your product sells well and generates margin.
The Right PLACE: Your inventory is where it’s needed at a given time, and you aren’t overstocked or stocked out.
The Right QUANTITY: You have the right amount of products at the ideal location.
The Right TIME: Your product is being received at the ideal time, so you’re not holding extra inventory or at risk of running out of inventory.
The Right QUALITY: Your product generates few returns and plenty of strong reviews.
The Right COST: Your product goes from origin to inventory location efficiently, so it can be sold with margin.

To get these six rights right and avoid overstocking, you need a better plan for managing your inventory — one that includes deep insight into your supply chain and better predictions about future sales. These three steps will help you get there.

1. Assess your true inventory status

Start by determining where you’re at risk of overstocking. Take thorough inventory audits of your stock levels across all storage locations in your supply chain.

If you’re already using an inventory planning solution that integrates with your existing 3PLs and sales channels, you should be able to see your current inventory status in real time. With a clear view of your existing inventory levels and accurate sales history, you’ll have clean data to feed your demand forecasts.

But what if you find that you’re already holding too much inventory?

In this case, there are a few things you can do to get back to healthy stock levels:

Offer discounted prices on dead stock, surplus inventory, and slow-moving products
Create product bundles
Offer bulk discounts
Run social media campaigns and promotions

If your products still aren’t moving, it may be time to eat the cost through inventory liquidation so you can reduce your carrying costs and invest more capital in your best sellers.

2. Improve your forecasting methods

Despite recent advances in AI in inventory planning, many brands are still relying on legacy demand forecasting methods, including enormous, slow-loading Excel spreadsheets that can’t be adjusted in real-time.

To avoid overstocks moving forward, your forecasts need to account for real-time variables like previous stockouts, seasonality, market outliers, and more.

When choosing an inventory planning solution, look for a platform that includes:

AI-assisted forecasting capable of interpreting many variables at the same time and making sophisticated recommendations to keep your sales and inventory aligned.
Data pre-processing to identify outliers like stockouts and marketing events and feed your forecasts with clean, up-to-the minute information.
Customizable dashboards to compare formulas, metrics, and inventory calculations, isolate and observe key patterns in your data, and make real-time adjustments with the click of a mouse.

With better tools, comes better inventory decisions. Use a system that will help you forecast demand in minutes instead of days, without over-ordering.

3. Modernize your inventory planning

When should you replenish? How much should you order? Where should you send it to fulfill planned demand? Your inventory planning process should be fully optimized to answer all of these questions in a glance.

With Flieber, you can:

Generate purchase orders that automatically take into account your most accurate, up-to-date forecast.
See exactly how much inventory you have in-stock and in-transit throughout your multichannel supply chain.
Get restocking and replenishment reminders that take into account MOQ, lead time, and more for fewer overstocks and more liquid capital to invest back into your business.

With your inventory levels optimized, you can focus your time and resources on growing your sales and profits. Not offloading overstock inventory.

Stop overstocks and get more out of your inventory

When you optimize your inventory, you improve your profits. And the process doesn’t have to be as complicated or time intensive as you might think.

Flieber empowers modern retailers to avoid overstocks and stockouts through customizable forecasts that help you deliver the right amount of product to the right place at the right time.