Overstocking inventory in business is one of the biggest mistakes that most organizations make. Adverse effects of overstocking inventory can lead to massive losses for the business and even if you think you will be able to cope-up with the issues, there are still various glaring disadvantages of overstocking. While many businesses still do it anticipating certain changes in the market or a sudden rise in the demand, companies are treading a thin line when it comes to assuring that the overstocking will work. With that said, in this article, we will take a closer look at the problems of overstocking and how overstocking can turn your profit-making business to a loss making one.
- Unwanted Cost: This is one of the most obvious drawbacks of over stocking your inventory. While there are plenty of costs that a business will have to incur while over stocking, the most notable one is storage costs. Over stocking will put a huge strain on the logistics and warehousing operations of the company. You will not only incur financial losses but the other resources that you put towards overstocking can be utilized elsewhere, so this might also interfere with the performance as well.
- Cash Constraints: As mentioned before, over-stocking can result to unwanted cost and if you are a new business or a business that is struggling with their finances, then you might end up with lots of cash tied-up in this. You need money to purchase inventory and you can repay it once the products sell but if the products that you are overstocking don’t sell, then your organization might face serious financial struggles. And if you purchasing the inventory on credit, then also if the product doesn’t sell, you will have this debt to be repaid and if you can’t do that, the reputation of your business will also be effected.
- Product Damage: This is also yet another important aspect that you as a business owner should keep in mind. Most products have an expiration date and there are some other goods that needs to be stored in climate-controlled spaces. So, through over stocking, you are not only paying more on storage spaces as mentioned before, if you are not able to sell these products before their expiration date, that will lead to a total waste of time, money and other resource. This is one of the most important things that you should keep in mind especially if you are planning on over-stocking perishable goods.
- Impacting Performance: As mentioned before, with more time put into the effort of over-stocking, you are taking away from the other facets of your operations. And this in-turn will adversely impact the performance of your company. This in turn can result in your company trailing behind the rest of your competitors and losing your customers. Both these can have a major impact on your business and its future. so, make sure that you plan the inventory stocking process carefully so that it doesn’t harm the day-to-day operations of your business.
These four makes up some of the many drawbacks of overstocking and if you are a business leader who is thinking about it, this article can help you to see some of the most obvious issues pertaining to overstocking.