3 Benefits of Donating Unprofitable Inventory

When sales drop or product returns increase, you may find your warehouse filling up with excess inventory. Excess inventory occupies warehouse space, ties up your working capital (especially if you need to lease additional space just for overstock), and in some cases, continues to lose value. For example, if you start selling a new & improved version of an old product, demand for the previous version may drop so low that even big discounts aren't good enough incentives for customers.

Liquidations and auctions are common solutions for dealing with overstock. However, the time it takes for them to start showing ROI and the labor of coordinating them are not conducive to every situation. Conversely, making in-kind donations of overstock can be easier (i.e. no negotiating with liquidators, no creating online auctions), faster, and better for your bottom line. Not many companies realize it, but simply giving away your unprofitable inventory can yield a number of business benefits, such as:

Tax savings

Inventory donations are tax deductible in the US. If your business is eligible for them, the federal tax deductions you receive may even be better than what you’d get from liquidation.

Operational savings

Unless you're in the business of rare collectibles, the total costs of storing outdated inventory can quickly exceed its value. By donating overstock, you free up valuable warehouse space to make room for more profitable products. On top of that, you save on transportation and disposal costs while helping communities in need.

Retain Brand Value

Repeatedly discounting and liquidating your products lessens their value and detracts from your brand. By partnering with a gifts-in-kind organization, you can avoid this scenario. These groups are licensed 501(c)(3) nonprofits that collect all types of unwanted merchandise from member businesses, then redistribute it across a tightly-closed "market" of member-NPOs like small charities, churches and schools.

In-kind giving is ideal for offloading overstocks, obsolete merchandise, discontinued products and returns. Even though unwanted inventory no longer benefits your business, don't forget that it can still be very useful to those in need.

Supply Chain Visibility – A Win-Win for Customers and E-Tailers

A good customer experience (CX) comes from consistently meeting shoppers' expectations during ALL touchpoints with your ecommerce business. Things like the UX design of your website, the tone and content of social media posts & marketing emails, your returns policy, customer service interactions, and the unboxing experience are just a few examples of customer experience factors that e-tailers tend to prioritize. However, despite improved understanding and measurement of how supply chains impact customers, little progress has been made in recent years towards using this information to make CX better.

In a joint study from logistics companies, Convey and eft, designed to assess the importance of customer experience in last mile delivery, 96% of survey respondents said CX is a critical measure of last-mile success. Despite this, just 5% of respondents said their current supply chain management systems fully support efforts to improve CX, while 61% said their systems do nothing to improve CX.

For e-tailers who want to improve their CX through last-mile fulfillment, increasing the level of transparency into your supply chain is a great starting point. For one, you can’t make improvements to your supply chain unless you understand all of the moving parts involved – so building up your visibility into the chain should be a natural extension of your work to uncover opportunities for improvement. Secondly, sharing supply chain visibility and inventory levels with your customers can improve their shopping experience.

The result is a win-win scenario. By enhancing fulfillment visibility, you can improve CX by providing inventory levels on product pages, back-in-stock alerts, accurate order tracking, and other features that help remove friction and uncertainty from the buyer’s journey. On the fulfillment side, better visibility into your supply chain and inventory levels can help you increase process efficiency to provide faster order delivery.

How to use Automation & Warehouse Management Software for Operational Efficiency

Ecommerce companies with high volumes of small orders need to be extremely efficient so that profits are not eroded by operational costs. If you can get through the initial pains of the implementation process, warehouse automation is a great operational advantage in this regard. But, you may find the ROI of automation to be underwhelming if it’s not completely integrated with your WMS. After all, since your WMS tracks and manages everything going on in the warehouse, it should also be facilitating the overall direction of your automated processes. When your WMS is synergized with strong automation strategies, you can significantly improve operational efficiency in the following areas:

Labor costs

Efficient automation will cut back on manual steps in the fulfillment process, allowing you to process more orders with less staff. However, a WMS with built-in labor management features will be required to orchestrate, schedule, measure productivity, and track labor costs across all operations.

Fulfillment throughput

As mentioned above, automation will speed up order fulfillment in general. A WMS will give you visibility into the production line and processes behind incoming product, put-away, picking, shipping, and returns. Together, you get the data needed to plan for the best use of your automated systems – pushing efficiency even further.

Order accuracy

Warehouses that rely more on manual processes than software or automation may have an order accuracy rate of 98% or lower. The day-to-day revenue loss may seems small, but it builds over time. With a WMS providing direction and automation taking action, you can expect to maintain 99.99% order accuracy.

Inventory transparency

Automation uses and provides inventory data while WMS provides data tracking, reporting, and planning features. Combined, they give you the necessary tools to enable real-time processing, eliminate errors with inventory locations, and make that information available to personnel in and outside of the warehouse.

Should you Invest in WMS?

A warehouse management system (WMS) is software that is designed to support and optimize multiple elements of warehouse operations and distribution center management. As a major component of enterprise resource management, most types of WMS are comprehensive solutions that streamline warehouses' abilities to manage, record, measure, and concatenate:

  • Inventory
  • Order volume
  • Backorders
  • Receiving
  • Inventory reorder levels
  • Shipment schedules
  • Delivery status
  • Shipping history
  • Sales data
  • Marketing reports
  • and more – all in real-time

Now typically, WMS implementation is customized to the unique requirements of an ecommerce business or fulfillment center's supply chains and/or distribution channels (especially when the related workloads are too large to reliably deal with via spreadsheets or other forms of manual input). In other words, they've traditionally been utilized by very large and complex operations. According to a study from the Warehousing Education and Research Council (WERC), 35% of the fulfillment centers surveyed said they currently do not use a WMS. But like all technology, WMS’s are becoming more affordable even for small-to-medium-sized ecommerce businesses thanks to the increasing variety of, not only providers, but WMS service structures like subscription, cloud-based, and Software as a Service (SaaS) models.

So, WMS are relevant to more businesses than ever before. How can you tell if it’s worthwhile for your business to adopt a WMS? It depends on your long-term performance goals, current operational pain points, and what WMS features you'd use to address them. If your facilities are challenged by any of the following, it may be time to seek help from a WMS vendor:

Less than 99% inventory/order accuracy: More errors in your fulfillment operations equals more returns, chargebacks, and lost revenue. The accuracy and insight provided by a WMS could remedy these issues.

Inefficiencies with warehouse space utilization or picking systems: Many WMS solutions include slotting optimization features that are especially helpful for growing/evolving inventories.

Rising operational costs: WMS's streamline multiple fulfillment processes – contributing to time and cost savings.

Inventory Slotting, Part 2: Best Practices

In our previous blog post, we pointed out how strategically optimized slotting in fulfillment centers contributes to multiple gains in operational efficiency. To realize these gains for yourself, you'll start by collecting and analyzing various data points about your inventory such as sales velocity, order frequency, size, weight, etc.

This inventory data will inform your slotting strategy moving forward – enabling you to slot all your SKUs in a layout that 1) shortens picking times and reduces the frequency of replenishment trips by providing sufficient space for extra stock (informed by sales and order frequency data), and 2) allows pickers to quickly and easily access them with limited bending, reaching, or equipment required (informed by product volume and weight).

In addition to those primary goals, there are additional "best practice" considerations that should be guiding your re-slotting decisions. Address the following aspects as early as possible to maximize the effectiveness of your slotting strategy:

Storage areas and product types

Do certain types of storage areas in your warehouse work better for certain product characteristics? Are changes to the warehouse's layout needed to truly benefit from re-slotting? For example, you may want to store paper products away from high-humidity areas, or reorganize the layout to promote better airflow.

Product cubic velocity and slot sizing

The product cubic velocity refers to the amount of units picked from a location, multiplied by the product's cubic dimensions. Accounting for the cubic velocity will ensure that the SKU's slot size and number of picking locations are optimized to reduce replenishment trips and overall congestion.

Safety

Consider how slotting changes may impact workplace safety. For example, are there SKUs that should be at lower levels or in forward pick areas instead of requiring ladders or forklifts?

The future

A lackadaisical approach to slotting is detrimental to overall throughput and efficient space utilization in your fulfillment center. To gain the benefits from slotting, the process needs to be addressed continually as product assortment or sales by product change. Prioritize slotting assessments in your warehouse operations to ensure that your facility is always running at peak efficiency.