Inventory overproduction is a well-known issue in the supply chain industry, and it can be a costly problem for companies. Inventory distortion caused by overstocks and stock-outs cost retailers $1.1T every year. In 2022, that number went up to $1.9T, mostly due to overproduction.
Funko Pop, a company that produces vinyl figurines of popular culture characters, recently announced that they are disposing of $30-36 million dollars of inventory. According to a press release, “Inventory at year-end totaled $246.4 million, an increase of 48% compared to the previous year.” The excess of inventory is a result of the company over-estimating its demand; when demand failed to materialize at the expected level, Funko Pop was left with a surplus of inventory that it could not sell. They even resorted to renting extra containers to store excess inventory.
Rather than racking up holding costs, whatever doesn’t fit in their current distribution center will be disposed of either in a landfill or by burning the inventory. This means hundreds of thousands of units of their collectible toys will be disposed of, which will result in a write down of $30-36 million dollars of inventory.
The disposal of excess inventory can have serious financial consequences for businesses. Inventory that is not sold takes up valuable warehouse space and ties up capital that could be used elsewhere in the business. Additionally, the disposal of excess inventory is usually an environmentally damaging process.
To avoid inventory overproduction, companies must find ways to accurately predict demand and adjust production levels accordingly. Tools with predictive analytics, like Fuse, can help companies better understand demand volatility and trends in demand data, then help close that communication loop with suppliers in a timely way, to mimic just-in-time production as closely as possible. Effective communication and collaboration between companies and their suppliers, customers, and partners will ensure that inventory is produced and distributed efficiently.
Implementing a robust inventory system that provides real-time visibility into inventory levels and movements is key to keeping inventory levels in check. Systems with real-time visibility can help companies identify potential inventory issues early and take corrective action to prevent excess inventory build-up.
In conclusion, inventory overproduction can be a significant challenge for companies in the supply chain industry. To avoid this issue, companies should implement best practices that include accurate demand forecasting, effective communication and collaboration with stakeholders, and real-time inventory tracking systems. By doing so, companies can reduce the risk of inventory overproduction, minimize the financial and environmental impact of excess inventory, and improve overall supply chain efficiency.