What are an Excess Inventory and its causes?
Common problems faced by most corporations are the Excess Inventory. What is an Excess Inventory? Excess inventory is the products that have not been sold in the market and they exceed the projected consuming demand for that product in an inventory.
Causes of Excess Inventory:
When an industry does not pay attention to their consumer behaviour, current market trends, or inaccurate forecasts of the products consumed it can often end up in creating excess inventory. Surplus inventory always costs our valuable time and high maintenance cost, resources, working capital, and consume warehouse space as they are not going to generate revenue any sooner.
The value and cost of a product may decrease the longer we stock them so it is recommended to utilize/sell the inventory products while they are new in the market. An Obsolete product often ends up in a scrap with a lower realization value.
The first and foremost cause of surplus inventory is inadequate forecasting methods. Poor forecasting often ends up in little or excess stock, hence to avoid this one needs to understand the current market trend and add qualitative forecasting. Sometimes due to long lead time products may end-up accumulated in the warehouse, hence reducing the long lead-time, and streamlining the supply chain can prevent the industry from the risks of obsolete or surplus stocks.
Few other reasons which cause surplus inventory are unreliable suppliers, ignorance of slow-moving products, poor inventory management, and variation in demand for products.
