With supply chains in disarray and brands nervous of disappointing customers by running out of products, overstocking is now a global phenomenon.
Fulfilment 3PLs have found themselves struggling with the challenge of how to manage excess stock. But overstocking is an issue for brands too. So, why is overstocking happening and how can brands and 3PLs mitigate its impact in the future?
In this FREE report ILG cover:
The Cost of Overstocking
More stock means more storage, which increases costs. This is potentially the biggest and most obvious disadvantage of a ‘justin- case’ supply chain strategy. Surplus stock takes up valuable (and expensive) space in a warehouse that could be used for inventory with a quicker turnaround time. Not only is this a huge disadvantage to brands, as they have cost tied up in stock which isn’t moving, but it also impacts fulfilment providers, particularly if no e??ort is made to increase order volumes and shift the stock more quickly. Furthermore, having too much stock in a warehouse can impact movement flows such as picking routes and storage set-up, and make fulfilment operations less efficient.
Too Much Stock: Why is it Happening?
Brexit and Covid-19 have caused major concerns for retailers and their supply chains. A shortfall of lorry drivers, closures of some of the biggest ports, red tape and other Brexit or lockdown-related issues have triggered major hold-ups. Then there is the impact of the war in Ukraine weighing down on brands and their supply chains, causing fuel shortages, lack of key resources for manufacturing as well as increased freight charges and container shortages.
The online share of clothes and footwear spending fell by 40% from pandemic peak to December 2022.
Consequences of Discounting
Excessive discounting can make life difficult for 3PLs too, especially during peak season when consumer demand soars and brands are keen to capitalise on Black Friday and Christmas spend trends.
“Reacting to market trends or keeping up with competitors are understandable and natural trends for brands. However, without collaboration with 3PLs on forecasted order demand (and returns) over a defined period, sales can start with challenges due to the need to quickly increase temporary labour and bespoke training. Collaboration between brand and 3PL is absolutely crucial in delighting end-users in these instances.” Glenn Woodhams, Operations Director, ILG.
Finding the Right Fix
Short-term solutions such as off-site stocking are far from ideal. Not only does moving stock off-site increase the cost of storing excess inventory. It also delays getting orders out, as stock needs to be transferred between warehouses which can often be located in completely different areas of the country. This in turn can increase lead times for the end-customer, potentially damaging a brand’s reputation.
There may be the issue of increased stock discrepancies which can arise when stock is held across two separate warehouses and systems. brands can help by keeping their 3PL partners in the loop regarding stock deliveries and anticipated shifts in consumer demand. By providing early warning and as much information as possible about the timings and discounts associated with specific products and promotions, fulfilment providers can predict demand, relocate products to optimise pick patterns and allocate resources to shift stock more efficiently.
Knowing exactly when stock deliveries and promotions are due, and timings of product launches and expansion into new geographies and retail networks also helps 3PLs to better control the ‘stock-ins’ and ‘stock-outs’.
A Future of Overstocking?
Overstocking trends are set to continue into 2023 with Gartner reporting that 43% of supply chain professionals are saying lack of inventory is one of the top concerns going into this year*. Now more than ever, demand forecasting and planning are crucial to help understand the true cost of stock holding and how to reduce the impact of supply chain issues more efficiently without compromising bottom lines.
“2022’s overstocking challenge led to a significant rise in discounting – even over the Black Friday period, IMRG noted a 78% uplift in live campaigns during the first two weeks of November, highlighting that promotional periods are not just increasing in frequency but duration as well.” Emily Power, Head of E-Commerce, Reload Digital.