The Secret Cost of Excess Inventory

Let's face it, problem inventory is just a part of business. No one's exempt. No one's above it. No one's free from dealing with its ugly head rearing up from time to time. It just happens. Dead stock, surplus, and problem inventory happen. Problem inventory could really be any inventory that exceeds the optimal axis of supply and demand. But for the sake of this article we will define problem inventory as this: "Any inventory that is at or near the end of its life cycle and has not seen sales or movement for a set time determined by the industry."

Sometimes also known as:

• Surplus Inventory
• Excess Inventory
• Dead Stock
• MOS, or marked out of stock
• Salvage
• Customer Returns
• Closeouts
• Liquidations
• Warehouse Damages

Call it what you will, but if you're sitting on goods that are taking up space and costing you money instead of making you money, then it's a problem. How much of a problem is what we're going to talk about in this article and hopefully find some reasonable solutions as well.

In case you're not sure about what to do with your surplus inventory, or how to get rid of it, or if you're even ready to let it go, let me enlighten you a bit.

Warehouse Space

The average cost of warehouse space in the United States is $5/ sq. ft. Depending on how much warehouse space your inventory is taking up and how long you've had it, your cost to simply house this merchandise could be much more than you think. Not only is that inventory costing you warehouse space directly, but think of how much it's costing you by default for the value of other possible goods that you aren't housing. Your precious and limited space is being tied up right now like a prisoner to your inventory that's not even bringing in a profit. Now we're talking about indirect costs as well.

Managing and Maintaining

I want you to also consider for a moment the cost to manage and maintain that merchandise. Don't you have someone watching over those goods and keeping them safe? Security personnel? Insurance fees? Management? Staff? It starts to add up fairly quickly, doesn't it?

Interest

What about interest on those goods? Did you pay for them outright in cash? Chances are you didn't, which means that interest is accruing on those goods as well. And since they're not selling or bringing in any kind of revenue, it is stealing the profits from your other productive inventories. At what point will you begin to pay it off and with what monies? That's right. The vicious cycle is going to just continue until you finally cut the cord. It's like they're on life support right now. With no chance of recovery. I hate to paint such a grim picture but the truth is that your problem inventory is sucking the life out of your business. And chances are it's sucking the life out of you too.

Emotional

This is another cost that is hard to measure, but what is it costing you emotionally to hang on to that inventory for dear life? It's like any destructive relationship, the quicker you get out the better. The longer you wait to get out of this relationship, the more it costs you. Not only financially, but emotionally, psychologically, and even relationally. Just get out.

Depreciation

Let's look at another factor most people never consider. The longer you sit on those goods, the more value they're losing. So if there is any value in them through secondary means of distribution, for example a reverse logistics or liquidation company, even it is slipping away. Someone is going to have to buy those goods and even with a discount retailer there is still a certain expectation of quality and fashion. The longer you wait to finally make a decision, the more value they're losing.

Opportunity Costs

And finally and most importantly, the one measure that is hardest to equate, but nonetheless just as tangible as anything, the opportunity costs of having your money tied up and not available for other investments. First of all without the money on the books, you're very unlikely to even be looking for additional opportunities, so even if they were available you wouldn't be looking for them. Second, even if you found them you don't have the room or the capital to invest because of your problem inventory. However, since we can't measure the opportunity loss, since we don't know for certain what opportunities we're missing out on, there's really no way of knowing exactly how much this element is actually costing us. But we can know for certain that it is definitely costing us.

Let's recap...How many ways is your dead stock costing you?

• Cost of warehouse space
• Cost of interest
• Cost of managing and securing those goods
• Cost of insurance
• Cost of emotional, psychological, and relational wear
• Cost of decay
• Cost of lost opportunities

All in all dead stock is a business killer. It stifles productivity, it stifles production, it stifles the entire business from top to bottom. It's like a cancer. In order for your company to keep moving forward and to maintain good health, you must keep the inventory moving freely. The freer the inventory moves the healthier we are. The less it moves, the greater the risk of diseases and other life-threatening maladies.

Now think about if you were investing all of that energy in a positive direction instead of a negative one. How powerful would that be? Take all of your negative momentum and make one incremental shift in your focus, and you could change your business and your life forever.

Before you choose to become a franchisee

If only the franchise bid, many assume it is the easiest way to start a business, sure profit, existing brand, we will get training from established franchisor, and others. But what we hear those who have not as probable headlong into the franchise business. The purpose of my writing this post just to share my own experience TWO open franchise units and the experience my friends.

Before you choose to become a franchisee of a franchise business system, I think you needs examine the following. Failure to comply with one of the following rules, will result in failure, but I thought you may be bankrupt!

FIRST:

Questionnaire system supplying their products. We must remember our goal is to leverage the franchisee purchasing power or "economic of scale". Which means, a great franchise system and franchisee already has a public course can supply goods at a lower price from other suppliers outside.

Create a little research, compare the prices they offer for 10 types of products, compare with similar products from outside suppliers. If their prices higher, just forget the franchise. If they fail to provide at competitive prices, meaning you do not have a profit margin in the competitive market. You must remember, you will compete with many other dealers who obtain supplies from outside suppliers. Are you able to compete later?
Following reasons, the franchisor is willing to "markup" price higher than other suppliers in the market, saw only concerned about their profit alone. You want to take shelter under the franchisor of such?


SECOND:

Study franchise fees imposed, it is worthwhile with their brand name? There are parties who charge franchise fees as low as RM 5000, some as high as Rs 120.000. Many within the RM 30,000. You must remember this is the cost of your business. If the franchise fee is RM 30,000 for 5 years, meaning no increasing the cost of Rs 6000.00 per annum. Then also survey, is the franchise fee can be returned if you make the decision to cancel the franchise agreement? Reality, most of the franchisor is only interested in making profits through franchise fees, I repeat most franchisor is only interested in making profits through franchise fees. Be careful. In my opinion there is no brand that Malaysia should put the franchise fees it on their business, because there is no large-scale advertising such as McD, KFC and the absence of a strong name in the market than their competitors.

THIRD

Cyclic system is still stock and supply. Try to find out there, whether you INSTRUCTION take whatever stock is supplied without the franchisor itself from the freedom to choose your own stocks and products that you want to put you in the store (this is the retail franchise system, beauty, and that depending on the product) . Do you need to pay up as soon as the goods into your store?
Are there any options for you to return all goods to the franchisor if you fail to sell these?

NOT on any questions above, you better forget beseech the franchise. Reality, most of the franchisor in Malaysia is only interested in selling their products on the franchisee, and "secure" their profits, without taking the risk of whether products may be sold or not by the franchisee. A lot happens, franchisee become "dumping ground", meaning the "dumping" goods in outlets that are not behavior-franchisor to the franchisee outlets.Terrible? This is the reality franchise system in Malaysia. If you do not fall franchisor give you credit, because you will owe to any, and most of them charge 1-1.5% interest each month.


FOURTH

Are you interested in a franchise system that requires you to "bank in" daily sales or deposited in your account franchisor ostensibly they can manage better. Meaning they will push the cost of stock, the cost of rental shops, your cost of business loans and others. Believe me, such a system would be wrong in your own long-term. Try you ask them, say if sales in a month is very low, only able to meet the cost of goods only, whether the franchisor will continue to pay rent and loan business? Whether you can earn from your own business?

Reality, not hope. Rental, lending it your problem. Important for the franchisor to ensure that only goods that you take, be paid in full. That's it.

CONCLUSION

There are many criteria you should consider. I will touch on the following series in the future. I just hope you think -ripen before entering the franchise business. Maybe you need to see the existing franchisee, or find those who know the business for advice.

Making soya bean curd

Taufu fah-(soya bean curd) and soya milk

Ingredients

300gm soya bean-soaked over night atleast 5 hours
12 cups water
1 tsp Gluco Delta Lactone(GDL)
1/2 cup boiling water
45gm cornflour

For sugar syrup:boil till sugar dissolved
1 1/4 cup water
2 cup sugar
3 slices ginger
3 pandanus leaves

1. Divide soya beans into 2 portions, Grind 1st portion with 6 cups water and 2nd portion with another 6 cups water till fine.

2. Strain in a muslin cloth or very fine sieve into a non stick cooking pot.

3. Let it boil , Scoop out excess bubble. while boiling prepare the cornflour mixture by adding GDL to 1/2 cup boiling water and cornflour. Pour into a rice-cooker pot.

4. When the soya bean milk boils, pour into the rice-cooker at a height of 2 ft.

5. At this point , dont not stir the mixture. Just scoop out excess bubble quickly on top.

6.Cover with a towel and then with the lit.

7.Leave for 1 hour before scoop out with a flat metal spoon into a bowl and add 4 tbsp sugar syrup. Serve hot.serving make for 6.

Note:

To make soya bean milk, use the remaining husk to 6 cups water and grind till fine. Sieve with a muslin cloth into a pot and let boil. Add a piece of pandan leaf if desire. Add 1/4 cup sugar .
serve hot or cold.

Gluco Delta Lactone(GDL) is a kind of hardening agent .