How to Prioritize Excess Inventory for Clearance?

Excess inventory is a common issue that many businesses face. It can tie up valuable capital, increase storage costs, and potentially lead to losses if products become obsolete. But with a clear strategy for prioritizing which items to clear first, you can turn this challenge into an opportunity to optimize your resources and improve cash flow.

This article will walk you through a step-by-step approach to determining which excess inventory items to prioritize for clearance, using proven strategies and actionable insights.

Why Prioritizing Excess Inventory Matters

Excess inventory may seem like a minor inconvenience, but it can have a significant impact on your business. If not addressed, it can:

• Tie up working capital that could be invested elsewhere.
• Increase holding costs, particularly for bulky or perishable items.
• Risk obsolescence, especially in fast-moving industries like technology or fashion.

Prioritizing inventory for clearance allows you to free up space, reduce costs, and maintain operational efficiency. A smart clearance strategy helps avoid deep markdowns and ensures you recover as much value as possible from excess stock.

Key Factors for Prioritizing Excess Inventory

To make informed decisions about which inventory to clear first, consider the following key factors:

1. Inventory Age

Older items should generally be cleared out first. Products that have been in your warehouse for an extended period may become outdated or obsolete, especially if they are seasonal or trend-based. Implementing systems like FIFO (First In, First Out) or FEFO (First Expiry, First Out) helps ensure that older stock moves before newer items.

Action Tip: Use your warehouse management system (WMS) to tag and categorize items by their age. Regularly review these reports to prioritize clearance of aging inventory.

2. Sales Velocity

Items with low sales velocity are those that move slowly through your inventory. If a product is sitting on your shelves for too long, it is tying up space and cash that could be better used for faster-moving items.

Action Tip: Conduct an ABC analysis, which categorizes products based on their importance to your business:

• A Items: High-value, fast-moving products.
• B Items: Moderate-value, medium-moving products.
• C Items: Low-value, slow-moving products.

Focus your clearance efforts on Category C items that are slow to sell.

3. Carrying Costs

Certain items are more expensive to store than others due to their size, special handling requirements, or perishability. High carrying costs can eat into your profit margins, making it essential to clear these items quickly.

Action Tip: Prioritize bulky or Read More