The Hidden Costs Of Excess Inventory |
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| By Jonathan Finn |
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| For many businesses, inventory is the single most expensive
investment they hold. It has become more and more common
that a business will tie half of [if not more] its total
capital in to inventory. Unfortunately in today's economy,
carrying too much inventory has proven to be a burden for
most companies. It needs to be understood, that inventory is
directly correlated with cost and risk: the larger the
inventory, the larger the cost and risk. Today, we will
discuss how your goods turn in to excess inventory and how
your excess inventory is costing you money every day. Businesses always expect to see their inventory to move quickly, but unfortunately things do not always go as planned. It should be understood that when the economy gets tight, consumer spending gets tight. When consumer spending gets tight, distributors, wholesalers, and retailers get stuck with slow moving inventory. Dismally, slow inventory is no different than excess inventory or closeouts; they all are exhausting your company's cash flow, rather than creating new use-able cash. So, what is your excess inventory costing you? Interest How did you pay for your inventory, or better yet, who paid for your inventory? Unfortunately, most people don't have the liquidity to purchase their inventory outright and are forced to borrow. If your inventory is not selling quick enough and you're not bringing in any sort of revenue, than what cash will you use to pay for the inventory? Where will you get this money? Storage Depending on how much warehouse space your inventory uses and how long you have had it, your costs to store your inventory are much higher than you'd imagine. A pallet is 48"x40", or 14 square feet. Figure that you have an inventory of 30 pallets [a 53' trailer load], since the average cost of warehouse space in the United States is $4.50 a square foot (annually), you're looking at a monthly fee of $160 ($1908 annually). Add in your handling costs, which on average are $4 per pallet touch, which is a minimum of $360 if you're lucky [saying that the pallet comes inbound, and then moves outbound immediately]. Finally, think about the inventory that you could be purchasing but cannot due to limitations on space. Your excess inventory is now stopping you from purchasing new inventory that could actually be making you money! Depreciation Depreciation should be the most obvious of your costs. Do you feel as if your goods that aren't selling quickly, are worth the same as they were 6 months ago? For most products, they're not. The longer your products sit, the more value they lose. Time If your inventory isn't selling as planned, you're most likely spending a lot of time stressing and grieving. Why beat a dead horse? Liquidate your excess inventory while it still has some value left. Hopefully I made it clear that excess inventory is a business killer if it is not taken care of in a timely manner. Excess inventory stifles a business's productivity from top to bottom. Inventory should always be constantly moving; the less movement in your inventory, the more risk your business is facing. |
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| Article Source: http://interpret.zar.vg | ||||
| About The Author Interested in liquidating your excess inventory? For a FREE liquidation quote, contact SELLinventory.com: Buyers of Excess Inventory. |
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