Short- and long-term surplus stock
Typically, distributors carry more inventory than they require to meet their customer demands. Up to 30% excess is not unusual, and because inventory is your largest asset, it demands close attention. Surplus stock is that quantity of product that is in excess of the amount needed to maintain normal demand. It is an inevitable part of a wholesale distributor’s environment. The key is to watch it constantly, and avoid excessive amounts of surplus, or surplus that is considered long-term, without sacrificing customer service.
You can take these actions to manage surplus stock and make space available in your warehouse, depending on whether it is short-term or long-term:
- Transfer excess stock to other branches
- Return the stock to the vendor
- Lower the price of items with excess inventory
- Offer special commissions to your sales staff for the sale of surplus merchandise
- Sell the excess inventory to a competitor
- Donate excess stock to a non-profit agency
- Discard it and take the write-off for your financial statement
Short-term surplus
Short-term surplus stock is stock that is available to sell in excess of line point plus order quantity. This formula is used to calculate short-term surplus:
- [On Hand – Reserved – Committed – Backordered – Demand + Received – (Line Point + Order Quantity)]
If you use the Min/Max order method, order quantity is not included in this formula. When a buyer reviews the Purchase Entry Recommended Replenishment Action Report, surplus stock in other warehouses can be listed so that it can be considered for transfer instead of buying more from the vendor.
You can also monitor your surplus stock using the Product Surplus Stock Report. This report lists both short- and long-term surplus so you can differentiate those products that can be transferred to other locations from those that should be returned to the vendor or sold off with a price reduction. Export the output to a CSV file that can be sent to your vendor or distribution warehouse for approval. Then, import the CSV file into Transfer Entry, or Purchase Order Entry to create PO RMs.
Long-term surplus
Long-term surplus is calculated when you run the Product Surplus Stock Report. You specify the number of months to be considered as long term (usually 6-13 months, but up to 25 months can be specified). To be considered long-term surplus, the product’s net available must exceed the number of months supply defined in the option as long term.
You can also view long-term surplus for products in Product Availability Inquiry. This value is calculated based on the number of months considered long term defined in the Long Term Surplus field in Product Replenishment Setup-Ranking.
The long-term surplus value is not stored on the product record. It is generated “on the fly,” and may change day-to-day, based on stock levels and usage.