The Problem of Slow-moving and Excess Inventory
Excess inventory occurs when a product exceeds the predicted customer demand and remains unsold. Slow moving and excess inventory causes headaches for brands across all industries and can result from factors such as forecasting errors, a poor economy, unpredictable weather, or market disruptions. For example, during the height of COVID-19 in 2020, many brands needed to adapt to changing consumer demand and increase production of products such as hand sanitizers and cleaning supplies. With consumers now purchasing fewer of these products, brands have been stuck with countless cases of excess consumer goods.
How Much Waste Does Excess Inventory Create?
Excess inventory has both a financial and environmental impact. From an economical standpoint, brands are typically faced with two options: 1) selling their products at a large discount in order to get it out the door as quickly as possible, or 2) discarding or destroying the goods, which results in zero profit and numerous harmful effects on the environment. In the fashion industry, brands are often reluctant to liquidate excess inventory due to a variety of reasons, such as brand protection or because the process itself is extremely time-consuming and manual. Instead, many brands have historically chosen to destroy or discard their excess inventory instead of selling at a discount or donating. These methods have led to fashion and apparel becoming the second most polluting industry in the world, resulting in polluted water systems and waste accumulation. In addition to the fashion industry, some of the biggest brands in CPG have experienced increased criticism from consumers and the press regarding the destruction of unsold inventory and disposal of food.
Did you know?
- One garbage truck full of clothes is burned or dumped in a landfill every second
- On average, Americans generate about 75lbs of textile waste per year, an increase of more than 750% since 1960
- 25% of freshwater in the US goes toward producing food that goes uneaten
- 21% of input to our landfills is food (represents a per capita increase of 50% since 1974)
- Somewhere between 30-40% of the United States food supply is wasted
- Globally, 1/3 of the food produced a year (1.3 billion tons) gets lost or wasted, which is enough food to take care of the 821 million people who suffer from hunger around the world.
Increasing Government Regulations, Pressure from Investors, and Changing Consumer Loyalty
Lawmakers in Europe have begun to focus on improving sustainability by preventing environmentally unfriendly activities. In January 2020, France passed the world’s first law forbidding companies from destroying unsold goods. Furthermore, the EU has come to propose a similar ban that would cover all 27 nations in the EU. In addition to increasing governmental regulation, brands are facing pressure from investors and consumers to implement sustainable solutions for everything from sourcing materials, to production and logistics.
Sustainability is now seen as a key success factor and differentiator in competitive markets, and leading brands are focusing on building out their own ESG programs to demonstrate the impact of their sustainable practices to potential investors. ESG stands for Environmental, Social & Governance Criteria, and is a set of standards for a company’s operations that socially conscious investors use to screen potential investments. In addition to developing ESG programs more brands have committed to contributing towards the Sustainable Development Goals originally set by the United Nations in an effort to improve sustainability worldwide.
Consumers in particular are more environmentally conscious than ever before, and studies show they are more likely to be loyal to brands that share the same sustainability values. Years ago, brands could rely on the quality of their product to ensure customer loyalty, but there has been a shift in thinking in recent years. Results from a 2021 survey conducted by the BBC argues that consumers are holding brands more accountable for their business practices. Survey results showed that 80% of consumers agree that clearly demonstrating a commitment to sustainability adds value to the brand, and 78% of consumers say that sustainable practices and commitments are an important consideration when making purchasing decisions.
As the destruction of unsold inventory receives more public disapproval and becomes more regulated globally, brands must re-evaluate their excess inventory strategy for managing and moving these goods through sustainable means.
The Bullwhip Effect and Lingering Effects from COVID-19
COVID-19 had a tremendous effect on supply chains worldwide. Almost 2 years later, you may still stumble upon empty store shelves. This is due to the “The Bullwhip Effect”, which refers to a phenomenon of inventory disruptions that runs all the way through a supply chain caused by variations in forecasting, order batching, and over discounting. 2020 was a year of both stockouts and excess inventory, and there are still many container shortages, backlogged ports, and a reduced workforce due to the lingering effects of the pandemic.
The need for a clear strategy on excess or obsolete inventory has been made even more pressing. At the height of the pandemic, lockdown measures and a shift in consumer habits changed sales for months, creating an unpredictable amount of unsold inventory that brands needed to offload. Many suppliers were wiped out of essential CPG goods such as toilet paper and hand soap at the height of the pandemic. Supply chains reacted by ramping up production to meet the increased demand. Then, with infection numbers dropping, brands were faced with the dangerous aftermath of the bullwhip effect. Ultimately, with a decrease in consumer demand, supply chains were stuck with millions of cases of hand sanitizer and other CPG goods.
Without full visibility, brands lack the ability to identify and predict excess inventory and are at risk of needing to discard or destroy inventory they are unable to sell. In 2022, brands still face the reality of the growing need for an agile supply chain to cope with unforeseen external factors and disruptions. It’s critical for brands to digitize their supply chain to improve sell-through and avoid inventory destruction.
Brands Are Taking Action
Brands are implementing their own sustainability programs to protect the environment in many ways, whether it’s through reducing waste in landfills and oceans or utilizing sustainable materials and renewable energy in the production process. To support these efforts, brands have also looked to inventory technology solutions like INTURN 360 to increase efficiencies and improve visibility. With the help of INTURN 360’s automated tools and actionable insights, leading CPG brands such as Unilever and KIND have been able to accelerate their go-to-market process and save time and money in areas such as donations processes or destruction avoidance.
How Your Brand Can Optimize Inventory and Operate More Sustainably
1) Adopt a data-driven strategy
When leveraged properly, technology can offer inventory analysis and data insights on how to proactively adapt in periods of demand and move inventory most efficiently. Many brands have little to no historical data to help improve their supply chain process moving forward due to relying on reactive, rather than proactive, processes. With more data and visibility, teams can streamline their workflows and make faster decisions on how they should move different subsets of inventory and at what stage in the lifecycle.
2) Invest in innovative solutions built around ML/AI
We’ve seen how inventory challenges can result from market disruptions, changes in consumer habits, forecasting errors as well as continued purchasing setbacks—even with the best planning solutions in place. To position themselves for success in times of disruption, brands have begun investing in new technology built around machine learning and AI in order to be more data-driven. With the ability to see the status and location of inventory at any given time, as well as the ability to identify inventory at risk of becoming slow-moving or obsolete earlier in its lifecycle, sales teams can be more proactive in moving products to other channels to prevent unnecessary destruction or discarding of goods.
3) Create a more predictable sales cycle through automation
Without automated tools to help manage their sales process, brands are faced with manual tasks revolving around spreadsheets and emails which are painstaking and prone to human error. The most successful brands have implemented as much automation as possible to ensure their go-to-market process is standardized and predictable. Developing a standardized process can help accelerate the speed at which you curate product assortments for buyers and negotiate, eliminating the risk of profit loss and over-selling. Brands with an optimized sales cycle experience shorter transaction times, allowing them to go-to-market more frequently and resulting in less destruction.
Conclusion
Excess inventory creates tremendous amounts of harmful waste each year, and brands across industries are looking for ways to mitigate the damage and build a more sustainable future. Market disruptions over the past two years demonstrated the importance of having an agile, digitized supply chain. With the right tools, a data-driven mindset, and a proactive strategy, brands can more efficiently move excess inventory into other channels and give products a second life.
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About INTURN
INTURN 360 is helping leading brands worldwide sell excess inventory faster, maximize margin recovery, and achieve zero waste. Our solution provides brands with full inventory visibility across the supply chain, enabling teams to streamline their workflows and recover cash faster. Reach out to learn how INTURN 360 can help your organization optimize excess inventory and operate more sustainably.