Too Much Inventory on Hand: Causes, Costs and Fixes

Too much inventory on hand is stock you won't use or sell for longer than you need to hold it. A small maker ends up there in a few ordinary ways: buying more for a price break, meeting a supplier's minimum, ordering from a good month's sales, keeping packaging for a product that's been dropped, or reordering without a reorder point. The cost isn't only the cash on the shelf. Extra stock takes space, gets counted, gets damaged, and for food, expires. The way to find it is weeks of cover: what's on hand divided by what you use in a week, item by item, against how much cover each item needs. In the example below, a small kitchen finds $2,234 of stock beyond what it needs, costing about $125 a month to hold, most of it in printed boxes and a pallet of salt. Below are the causes, the cost, how to find the excess, and how to sell it down and stop it coming back.

The short version

• Work out weeks of cover for each item: on hand ÷ used per week.
• Set a target per item: enough to cover the supplier's lead time and a margin, no more.
• Everything above the target is excess; value it at what you paid.
• Holding it costs a share of its value every month, more for food that can expire.
• Sell slow finished goods down; stop reordering what's been dropped; use excess ingredients first.
• Prevent it with reorder points from real use, and minimums weighed against what they cost to hold.
• TaroStack shows stock that isn't moving and a reorder list in days of cover. More below.

Why it happens

What it costs

Holding stock costs money every month: the cash tied up, the space, the cooler or freezer, insurance, handling, and what spoils or goes out of date before it's used. In inventory carrying cost, a small kitchen works that out at about 67% of the stock's value a year, 5.6% a month, with spoilage the biggest part. At that rate, every $1,000 of excess stock costs about $56 a month to keep, and that's before any of it expires.

Finding the excess: weeks of cover

Windward Roots, the made-up taro business I use in these examples, ran the numbers at the end of October:

At 5.6% a month, the $2,234 costs about $125 a month to hold. The targets are this kitchen's own: three weeks for coconut milk with a one-week lead time, six for salt that keeps for years, eight for boxes that take a month to print. How a target relates to lead time and a reorder point is in reorder point example.

Selling it down

• Use excess ingredients first. Plan the next batches around the coconut milk and salt, and don't reorder until they're back to target.
• Sell slow finished goods before their date: a bundle, a market special, a wholesale offer to a store that buys often.
• Stop reordering dropped products, and decide what to do with their packaging: reuse, sell, or write off.
• Write off what can't be used, with the reason, so the books match the shelf; what's dead and how to deal with it is in obsolete inventory examples.

Stopping it coming back

1. Set reorder points from real use, not feel, and recheck them every few months.
2. Weigh each minimum or price break against what it costs to hold: a $90 discount on cans that cost $181 to hold isn't a saving.
3. Ask for smaller minimums or split deliveries, and say what you'd buy over a year.
4. Count the items that matter often enough that the books can be trusted.
5. Watch weeks of cover monthly, item by item, so the excess is found while it's small.

What the right amount of stock looks like is in how much inventory to keep on hand.

Where this stops working

Weeks of cover in a spreadsheet are only as good as the usage numbers behind them, and those come from batch sheets and sales typed in later. The printed boxes sit in a back room nobody counts, the dropped product's labels are still on the reorder list, and the salt pallet looks like a bargain until someone works out it'll last half a year.

How TaroStack does it

TaroStack shows the excess as it builds, from what moves.

Stock that isn't moving. TaroStack lists stock that isn't moving, with how long since it last went out, so slow money is visible, and stock value is shown by site and month.

A reorder list in days of cover. The reorder list answers how many days of cover you have at the rate stock really moves, and reorder points can be suggested from that movement, so you reorder when you need to, not when it looks low. Counting suggests what to count, so the books can be trusted.

And dates that warn you. Lots close to their date show in your alerts, so excess food stock is used or sold before it expires, and anything written off comes off as an adjustment with its reason. On Standard, planning adds safety stock and min/max per item and site, and forecasts from your own history.

The reorder list, slow-moving stock, stock value and expiry alerts are on every plan, from $49 a month; planning with safety stock and forecasts is on Standard at $99. The first 30 days are free, with no credit card. If you'd like a hand setting up, ask, and we'll do it with you.

Questions people also ask

What causes too much inventory on hand?

Buying for price breaks, meeting supplier or printer minimums, ordering from a good month's sales, keeping stock for dropped products, reordering without a reorder point, and counts that make stock look lower than it is.

What are the problems with too much inventory?

Cash tied up, space and cold storage used, more to count and handle, and stock that expires, gets damaged or goes out of date before it's used. Together, a share of its value every month.

How do you know if you have too much inventory?

Work out weeks of cover for each item, on hand divided by what you use in a week, and compare it with how much cover the item needs given its lead time. Anything well above that is excess.

How do you reduce excess inventory?

Use excess ingredients first, sell slow finished goods before their date, stop reordering dropped products, write off what can't be used, and set reorder points from real use so it doesn't build up again.