In the ever-evolving world of business, inventory management remains the most challenging aspect. Maintaining an ideal stock level is an important business requirement, but the changing market demands, and customer preferences give rise to unsold stock, which becomes the surplus stock for the company. Proper management of this surplus stock is important to avoid cash flow issues, high holding costs, tied-up capital, opportunity costs, and risk of obsolescence. Businesses can use a variety of methods like discounts, flash sales, clearance sales, remarketing, etc., to sell the excess inventory, but one method that has emerged as the most popular one right now is “Consignment of Surplus Inventory.” This innovative strategy is gaining popularity as it not only clears the stock but also eliminates your efforts and overhead costs. In this, the consignor sends the excess stock to the third-party company called the consignee, which takes complete responsibility for selling the goods at a reasonable price. The consignee company gets the fixed commission or a certain percentage of sales, and the rest of the amount goes to the actual owner, i.e., the consignor. In this blog, we will discuss some of the important benefits of using the Consigning surplus inventory strategy in business and thrive in this competitive business world.
Free Up Storage Space
Consigning surplus inventory to a third party frees up the storage in the warehouse and transforms it into a strategic asset. This also reduces storage costs and makes space for trending and seasonal products that have a higher potential to increase profit and boost sales. The freed-up storage space serves as a blank canvas for enterprises to paint new possibilities, maximizing their physical resources and improving overall operational efficiency.
Cash Flow Improvement
The most significant benefit of consigning excess goods is cash flow improvement. Consignment improves cash flow as consignors do not have to pay anything like commission to the consignee until the products are sold. Payment is usually made once the given inventory is sold, which helps the business keep its liquidity. The opportunity to bring and sell trending products also results in increasing sales and maintaining high cashflow. Moreover, the ownership of goods remains with the consignor until they are sold to the customers. The risk of obsolescence and stockpiling is also reduced as goods are transferred to a third party for sale when you consign surplus inventory.
Potential for More Sales
Accumulated inventory on the shelves is a roadblock that ties up the capital and reduces cash flow and the space for new products. However, when such inventory is consigned to a third party, the door to exceptional sales also opens. The consignee company takes the responsibility of selling your excess goods in the market at a fair price to increase their commission. They increase the exposure of your products to the target market, build customer trust, and influence them to take action. The likelihood of sales increases when specialized people take center stage and carry the tasks related to selling your products. On the other hand, the business gets the opportunity to tap the new markets and sell products that are in trend. This increases the sales and profit of the business and makes it flourish in this competitive business world.
Enhance Product Visibility
When consignors send their excess goods to a third-party company, the responsibility of displaying, marketing, promotion, and selling also transfers to them. This allows the consignor company to present their goods in front of new customers and tap a more significant market segment, which enhances product visibility. This is especially useful for businesses trying to expand their reach or enter new geographical regions. Consignors can enter into the retail sector as the goods are sold through retail stores, allowing them to generate cash without having to develop their own sales channels.
Cost Effective Method
Overstock goods frequently incur holding costs such as storage fees, insurance, depreciation, and upfront inventory purchase costs. However, consigning surplus inventory is cost-effective as it reduces the holding and disposal costs, marketing and promotional costs, risk mitigation, carrying costs, and opportunity costs. This not only lowers immediate costs, but it also improves long-term financial stability. Besides that, it also results in faster inventory turnover as the consignee has an incentive to sell the products rapidly in order to gain revenue, which also prevents stock obsolescence.
Relationship Building with Consignees
Although the main motive of consigning surplus inventory is selling the excess stock, it also gives a unique opportunity to cultivate and nurture collaborative relationships with their consignees. This relationship can turn into long-term business partnerships and deals. Long-term collaborations may also pave the way for further commercial prospects like joint ventures, exclusive distribution deals, or widened product lines. Effective communication helps consignors get regular reports on inventory status, sales performance, and market trends and insights, which can aid in the fine-tuning strategies and the improvement of outcomes. Moreover, strong consignee relationships enable organizations to access their consignee’s knowledge, abilities, and market reach, resulting in a dynamic synergy that goes beyond surplus inventory management.
Focus on Core Operations
Business can thrive only when it focuses on the core operations without any distractions for auxiliary tasks. However, having too much inventory in the warehouse makes it difficult to concentrate on essential tasks, which harms the firm and makes it impossible to take advantage of current market prospects. Consigning surplus inventory frees up essential resources like employees, labor, time, and finance, enabling businesses to maintain their focus on crucial tasks like product development, marketing, selling, and customer service. Moreover, by giving the consignee control over the inventory, consignor companies streamline the tasks and enable their workers to concentrate on what they do best to enhance the company’s growth and achieve success. Companies are better equipped to innovate and create new goods or services. They can spend money on R&D, look into untapped markets, achieve significant growth, and keep a step ahead of rival businesses.
Innovative approaches and strategic decisions are the cornerstones of success in the ever-evolving world of business and commerce. Surplus inventory, which is a major challenge for the business, gets converted into a big opportunity due to consigning surplus inventory method. This unique and trending method not only removes the excess stock but also provides enough benefits to the company. It’s a plan of action that goes beyond standard inventory management, allowing for dynamic collaboration with third parties who are incentivized to sell surplus goods efficiently and effectively.