Manufacturing’s ‘dangerous’ £100k overstock problem

5 April 2023

Manufacturers are suffering from excess inventory stockpiles after continued supply chain disruption, but could see financial benefit by moving to leaner purchasing models.

UK manufacturers are, on average, holding £102k worth of additional stock in an attempt to mitigate the impact of ongoing disruption, shortages and “billowing” lead times, a report by software provider Unleashed has found.

In the US, this figure stood at USD$157,000 (£126,000), while in Australia the average overstock was worth AD$231,000 (£124,000), and in New Zealand the figure stood at NZD$215,000 (£108,000), according to the analysis of 1,886 firms In the UK, New Zealand, Australia, and the US. 

Unleashed said that such overstocking was “dangerous”, as it could lead to longer cash flow cycles and stock becoming obsolete.

The “Cash flow and overstock report” found firms were typically spending twice as much on stock in 2022 as they were before the pandemic.

Unleashed head of products Jarrod Adam said: “Firms last year were forced to stockpile in response to supply chain shocks. But that's had serious cash flow impacts. Now the challenge for many is freeing up cash flow as economic conditions tighten – and the good news is the money is there, when you look closely at the numbers.”

The sectors in the UK holding the highest value of goods above what was needed included:

  • Sport, Entertainment and Recreation (£152,870)

  • Electrical and Electronic Components (£136,041)

  • Furniture, Fixtures, Home Furnishing (£122,786)

  • Health, Medical Supplies and Equipment (£116,934)

  • IT Products and Services (£107,434)

  • Industrial Machinery, Raw Material and Equipment (£102,415)

  • Energy, Chemicals (£92,015)

  • Electronics, Telecommunication (£89,238)

  • Clothing, Footwear, Accessories (£86,223)

  • Personal Care (£79,987)

  • Food (£76,772)

  • Beverages (alcoholic and non-alcoholic) (£47,515)

The report found while some companies wish to reduce their stock levels, limitations of just-in-time supply chain models have prevented them from doing so. 

The Dirt Company, a cleaning products manufacturer, cofounder Frankie Layton said: “There is an opportunity currently to reduce our stock levels back to pre-pandemic levels, but we are hesitant. The rug came out so quickly from under our feet the first time.

“I’d like to ease back toward ‘just in time’, but I’m not going to make that leap until I need to, or I trust the supply chains enough to do so.”

Manufacturers could secure “significant additional revenue” by maintaining tighter control over stock and adjusting re-supply orders, Adam told Supply Management.

“The first priority for most firms is ensuring that their purchasing is appropriate – both for forecasted demand as well as current lead times. If you can pare back your reordering over time that’s usually the safest way to reduce overstock. But it can be a very nuanced, line-by-line, job – so the companies that succeed here will be those with good data – on things like rate of use, lead times, and margins for each stock keeping unit. 

“When you’re reducing stock levels another approach is simply to ‘tear the bandage off’ and offload goods before they expire or become obsolete. That can be important for products with shorter lifespans, but here there’s a risk of training the market to only buy at discount rates. If your entire sector’s doing the equivalent of running a ‘golf sale’ that can become a race to the bottom which can see businesses trading at a loss.”

However, he added, some companies could explore “own-brand” options with their products, allowing them to offload excess inventory to a different market segment without undermining other brands. 

☛ Want to stay up to date with the news? Sign up to our daily bulletin.

CIPS Knowledge
Find out more with CIPS Knowledge:
  • best practice insights
  • guidance
  • tools and templates