Want to Meet Sustainability and ESG Goals? Don’t Ignore Excess Inventory.6 min read
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Companies across industries are experiencing increased pressure to meet sustainability goals as regulators, government bodies, and international agencies call for businesses to cut back on carbon emissions and reduce waste. In 2021, a United Nations climate change conference called for greater cooperation between businesses and governments to meet ambitious sustainability goals. COP26 is further built on the existing UN Sustainable Development goals.
However, businesses don’t just face pressure from political leaders. Consumers are increasingly concerned about sustainability. A recent survey by the Conference Board found that American consumers want businesses to do more in areas like waste reduction to reverse the impact of climate change and make their practices more sustainable.
While companies are implementing new solutions to introduce more sustainable practices across the supply chain, such as using recyclable materials in the production process or reducing carbon emissions from transportation and logistics, businesses can drastically reduce their waste and energy usage simply by more effectively managing their excess inventory. Here, we discuss how excess inventory impacts carbon footprint and what brands can do to reduce environmental waste.
Can slow-moving and excess inventory be prevented?
Slow-moving and excess inventory can create many financial and operational headaches for your business, especially in light of rising consumer expectations. Inventory problems can also lead to immediate and long-term harmful effects to the environment.
For example, in the fashion and apparel sector, businesses have often been forced to destroy excess inventory or send goods that they are unable to sell straight to landfill. These practices were often the result of either the company being unable to store the unsold goods or simply wanting increased brand protection. The Environmental Protection Agency reported that in 2018 alone, 17 million tons of textiles were dumped in landfills. Other unwanted items are also often dumped in the oceans, where they can disrupt ecosystems and endanger marine life.
Excess inventory continues to be a major challenge for companies, especially in recent months. But is it preventable? Even with strong planning solutions in place, there are several factors that can lead to the inevitable buildup of slow-moving and excess stock.
1. Changing Consumer Spending Habits
Consumers’ buying patterns shift rapidly. Highly sought-after items can suddenly become unpopular; products that once flew off the shelves will languish in warehouses, unwanted. This is easiest to see in areas like fast fashion, where clothing trends are always changing. But even sectors like food & beverage, children’s products, or personal electronics can see unexpected changes in consumer behavior, which result in excess supplies of items that were once popular.
Inflation, and consumer concerns about the economy, can also play a role in changing levels of consumer demand.
2. Forecasting Errors
Forecasting is still not perfect, and many businesses fail to correctly predict consumer demand. This results in companies producing too much and then scrambling to find a way to deal with the excess inventory. Fortunately, many forecasting errors can be eliminated with a data-driven forecasting strategy, and with today’s technology, you can use machine learning tools to find patterns in your sales data and accurately predict new trends.
3. Unpredictable Supply Chain Disruptions
Global markets are more interconnected than ever, which means that supply chains are long and complex. Supply chains are frequently subject to unpredictable disruption due to global and geopolitical events, such as the ongoing war in Ukraine. Other unforeseen world events like the COVID-19 pandemic and lockdowns still continue to disrupt production and logistics to this day, creating a cascading effect of inventory shortages, delayed shipments, and then excess inventory down the line.
There will always be external, uncontrollable factors that can lead to excess inventory. Therefore, the right question to ask is not “Can excess inventory be prevented,” but rather, “How do we deal with excess inventory when it inevitably builds up?”
Despite significant advancements in adopting solutions to optimize areas such as planning and forecasting, many brands are still stuck using outdated and manual processes that prevent their teams from effectively managing aging inventory. Teams also lack the visibility to predict and identify inventory at risk of becoming slow-moving or excess. Instead of utilizing automated software tools, they rely on complicated and extremely time-consuming processes involving spreadsheets, emails, and phone calls to move unsold inventory into other channels. As a result, brands have been largely ill-equipped to quickly react to unexpected inventory levels and end up selling at a loss—or worse, destroying or discarding the goods altogether.
How Brands Can Leverage Excess Inventory to Meet Sustainability Goals
Business leaders often struggle to balance their environmental goals against the very real need to show a healthy bottom line. The excess inventory offers a unique opportunity to address both of these areas since not only can you reduce harmful waste, but you can also unlock capital that would otherwise be tied up. What steps can leaders take to prioritize excess inventory as part of their larger sustainability mission?
1. Build a Broad Team of Stakeholders
It helps to involve key decision-makers from across your company in your sustainability planning. When it comes to identifying and evaluating excess inventory solutions, you should ideally involve stakeholders from IT, finance, sales, supply chain, and sustainability to ensure that reducing excess inventory waste turns into a company-wide priority.
By forming a cross-functional team of stakeholders, you can ensure that any new solution you invest in will:
- Adopt integrate seamlessly with your existing tech stack
- Provide significant ROI and operational savings
- Improve sales team efficiency
- Deliver tangible results that advance your organization’s sustainability mission
2. Invest in a Solution that Provides Greater Visibility and Improves Decision-Making
Automate Tedious, Time-Consuming Processes
Identifying, managing, and selling excess inventory involves a lot of time-consuming and tedious processes. Emails, excel spreadsheets, and paper lists are cumbersome to update and manage. They are also difficult to share with your team. Most businesses today are spread out over a large geographic area, which means that they need a way to quickly share information electronically.
Gathering inventory data from disparate sources, curating product offers into spreadsheets for buyers, and negotiating pricing and quantities can all be slowed down by time-consuming and manual processes. A common consequence of relying on these processes is over-selling or presenting inaccurate or outdated inventory data to buyers, which slows down transactions and prevents brands from being able to recover higher margins and increase sell-through.
By leveraging a solution that centralizes and provides easier access to inventory data and automates manual processes, teams can optimize their go-to-market cadence and spend valuable time on the more strategic aspects of the business.
3. Measure the Impact of Excess Inventory on Sustainability Goals
Measuring your sustainability contributions is a good way to attract consumers who care about green goals and show regulators that your organization is making meaningful progress. By moving excess inventory into other channels earlier in the product lifecycle, your team can then track metrics that signal the reduction in waste, premature destruction of products, and the reduction of carbon emissions. For example:
- The volume of products, plastic, or fabrics prevented from ending up in landfills or oceans
- Reduction in carbon emissions resulting from deteriorating products in landfills, or emissions resulting from the transportation of excess inventory
- The volume of products, plastic, or fabrics saved from harmful destruction (e.g. zero waste centers or burning)
Final Thoughts
While excess inventory continues to challenge businesses, there is a huge opportunity for teams to make a positive environmental impact while increasing profits. By prioritizing this area of the business and investing in solutions that provide visibility, automated tools, and actionable data and insights, teams can be more strategic in addressing excess inventory to avoid the unnecessary destruction and disposal of goods.
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