Nine inventory management mistakes—and one easy solution
August 9 2013 by Gary C. Smith
Here are nine common approached to excess inventory and one suggested solution.
1. Do nothing
It’s easy to put off decisions about what to do with your slow-moving inventory. But time, and the inevitable accumulation of inventory, will take its toll. And at year end, you’ll be paying increased taxes.
2. Lease additional space
Your overage may be out of sight, but by leasing additional warehouse space, all you’re doing is contributing to the profitability of storage and logistics warehouse companies instead of your own business.
3. Liquidate it
If you choose to sell your excess inventory at a dime or pennies on the dollar, be forewarned—the product may wind up in secondary markets competing against your own efforts to sell current stock. You may even get calls from unhappy customers because you’ve gotten in the way of their sales and cut into their profit margins. Liquidation can lead to strained customer relationships.
4. Continue selling it
If you do the same thing over and over again, expect the same result. If sales have tapered off on certain products, why would they pick up again at a later date? Don’t hang on to outdated and stale merchandise. Why not move on to newer, more attractive and likely more profitable product lines?
5. Give it away locally
Giving away small amounts of product locally might help your community outreach efforts. But it might also reduce sales and get people used to the idea that they can expect the same in the future. Getting involved on a local board, volunteering for a special event or helping local charities raise funds might be more effective.
6. Sell it to your employees
Although employee discounts are not uncommon and can be a nice perk, this Band-Aid approach will only mildly—and temporarily—reduce inventory levels.
7. Give it away to your employees
If you allow your employees to take moderate amounts of product home with them, expect your product to start showing up on eBay.
8. Sell it to your top accounts
Similar to local giveaways, frequently discounting product for your existing buyers will motivate them to wait for your next price reduction instead of purchasing your products at full price.
9. Send it to a landfill
Assuming the product is ultimately destroyed and doesn’t wind up on a secondary market, trashing your merchandise is just a wasteful strategy.
Luckily, there’s an easy alternative to these misguided approaches that turns a problem like excess inventory into a good thing. IRC Section 170(e)(3), a little-known section of the tax code, allows Regular C Corporations to donate excess inventory and receive an up to twice-cost federal tax deduction. Donating your excess inventory to a gifts-in-kind organization not only will significantly reduce your tax obligation, it will get your excess, non-selling products into the hands of qualified, deserving nonprofits across the country. In addition, provisions in the tax code stipulate that donated product cannot be resold, bartered or traded and must be used in a manner consistent with the charity’s mission, which means you’ll rest easier knowing that the product won’t find its way back to the open market.
For even greater security and peace of mind, you can donate excess inventory to a gifts in kind organization like the National Association for the Exchange of Industrial Resources (NAEIR). With a national membership base of pre-screened charities, they eliminate the hassle of finding qualified charities.