Handling Excess Inventory in Manufacturing

posted on: Wednesday June 1, 2016

Xpress SingledrevaEven with the implementation of so many lean techniques, excess inventory is something most manufacturers have to deal with. Improving your operation to reduce overages is a priority, but what do you do with extra SKUs in the meantime?

According to Gary C. Smith, who wrote Modern Materials Handling’s “Other Voices: Nine inventory management mistakes,” many of the traditional approaches can hurt your business and customer relations. For example, giving it away to local organizations can decrease the value of the merchandise and set expectations that your products will be free in the future. If you give it away to employees, they can turn around and sell it on eBay.

Smith recommends an alternative that will reduce your tax obligation while getting your excess product into deserving nonprofits. He references a “little-known section of the tax code,” IRC Section 170(e)(3). According to Smith, it “allows Regular C Corporations to donate excess inventory and receive an up to twice-cost federal tax deduction.”

When you donate to a gifts-in-kind organization, it redistributes your merchandise to non-profit organizations like schools, churches, and government agencies. They keep intricate records of donations and redistribution so you know exactly how much of your product was distributed and who received it. Shipping charges are often tax-deductible as well.

Another benefit of taking this approach is that the tax code prevents products from being traded, bartered, or resold into the open market. Smith says, “The allocation system for gifts-in-kind donations ensures that the products are distributed widely and thinly across a closed, national nonprofit network, providing protection from the brand and product devaluation that can occur when extra inventory ends up in the open market.”

If it doesn’t make sense to donate your excess inventory, and you’re looking to keep it on hand, Smith warns against leasing additional space. Rather, identify how you can optimize current space. In many cases, you can make your storage more efficient if you shrink the flow paths.

If your storage aisles accommodate forklifts, one of the easiest ways to gain more space is to use a tug and cart system where forklifts aren’t absolutely necessary. An electric-powered tug is a fraction of the size of a forklift, and it’s designed to maneuver around corners and tight spaces. Additionally, using power tugs increases efficiencies in general manual material handling, so not only will you increase space, you’ll also increase productivity.

If you’re looking to optimize your storage space, contact Load Mover Inc. We understand exactly how and where a tug and cart system can optimize space and manual material handling. Connect with us at info@loadmoverinc.com or call 952-767-1720.