Excess Inventory is Costing You Money, Here’s What You Can Do About It

12 Apr2019

Picture this: your brand partners with a packaging company for your full line of new paleo granola products. You’re so excited to get your granola on the shelves and in front of customers! The minimum order for the packaging is high, but with the hundred other things on your plate and the sheer excitement of finally getting packaging, you agree and place the order.

Six to twelve weeks later, you receive the new packaging. You’re incredibly excited and start sending your product to market.

All is going well with the new packaging until a month goes by and you receive your USDA Organic Certification and decide to change a couple of ingredients. While these are both positive changes, now you have thousands of unused packages sitting in your warehouse that are obsolete. You cringe at the fact that you’re going to waste so many packages and so much money.

Now, you have to pay for plate fees to change the packaging design, request another high minimum order and wait a few months for your new, updated packaging. You’re frustrated, your cash flow is non-existent and quite frankly, you’re annoyed that the process isn’t easier.

Here’s the thing: regardless of the situation, excess inventory is costing you money. But, there’s a way to eliminate excess inventory and make last minute changes without the added fees and wait times.

If excess inventory is costing you money (which, it is), just how much money are we talking, and what can you do about it?

According to Investopedia, the “carrying cost of inventory often refers to a certain percentage of the inventory value, which represents the cost a business incurs over a certain period of time to hold and store its inventory.”

This percentage includes the physical space occupied by the inventory, depreciation, insurance, taxes, employee costs, the cost to keep items in storage, opportunity cost, and the cost of deterioration and obsolescence.

Adding Up All the Costs of Your Inventory

Obsolescence is something you may or may not have considered when initially ordering your product packaging, but the fact is, in the consumer packaged goods space, obsolescence is a real risk due to several factors. Consider the number of changes that can happen when running a product brand:

  • Recipe (or formula) changes
  • Design or branding changes
  • Discontinuation of a SKU
  • The addition or removal or certifications
  • Full removal of a product from your line
  • Sales fail to meet expectations

Just imagine, if a product or recipe changes, the packaging must change to reflect that information. A new nutrition facts panel, as well as graphics tied to the flavor or recipe, would all change too.

Or, let’s say that your company wants to undergo a redesign to the package to stay up with current trends, add compelling graphics to the package to boost sales, or run a special holiday promotion. These factors all amount to new packaging.

Even a change in ownership can mean a package redesign, rendering what is in inventory useless.

Holding inventory of your product when these changes occur can cost your business millions as all inventory would potentially likely have to be discarded.

Aside from waste threats, consider the amount of money that is tied up in a large inventory that could be used elsewhere — for R&D, marketing efforts, expansion, or other business expenses. Considering where to put your money is referred to as the opportunity cost, which refers to the trade-off of putting your money in one spot (inventory) over another (R&D, human resources, keeping a cash cushion, etc.).

Why Keeping a Low Inventory Is the Smart Choice

Choosing to keep inventory low helps your business have more liquidity. Having an adequate amount of liquidity in a business, especially a small to medium-sized business, is crucial to cover unforeseen expenses, and have enough cash to properly manage your business and staff.

According to The Balance Small Business (thebalancesmb.com), most failed businesses say that all or most of their failure was due to cash flow problems. Choosing to keep inventory low, means more money in the business to do with as you please.

Consider these aforementioned costs for the inventory you have and you can quickly see the amount of money that is tied up in product inventory that you may never even use. Lots of inventory means lots of waste, which translates quickly into a loss of money.

So, what is the solution? How can you prevent this inventory waste crisis from happening to you? And how can you keep inventory low when most packaging companies have such high minimum orders?

Short and Medium Runs Are the Answer

The solution lies in digital printing for flexible packaging. Aside from the slew of benefits that this technology delivers, digital printing allows for short and medium runs to make sure you don’t over buy.

And short runs mean low minimum orders. Instead of ordering in bulk, you can order on demand, you can order as much as you want and when you want.

With short and medium runs, you order less product on a more frequent basis and use what you buy right away to get your product packaged and out onto store shelves. There is no excess inventory, thus lower costs for storage, a lowered risk of obsolescence, and more cash in the business.

In the past, short runs and the term competitively priced did not go hand in hand. To bring down costs, customers had to order in bulk, often ordering thousands more than needed at the time.

With digital printing, short runs and competitively priced packaging are a perfect match, complete with no plate fees (it’s a win-win in our books, and why we do what we do at ePac).  

At ePac, we offer competitively priced short to medium run length flexible packaging orders, and 10-day turnaround. We’re the first supplier in North America built entirely on the latest wide-web digital printing technology – the HP Indigo 20000. We’re committed tproviding excellent customer service while delivering true high-definition custom printing with variable imaging to create the perfect package every time. With digital printing and ePac, our customers can print on demand to avoid inventory and obsolescence costs.

Call us today to learn more about how short and medium runs can save you money while reducing inventory waste.