Following the abrupt supply shortages of the early pandemic, retailers felt the need to be on the safe side by dramatically increasing their inventory levels.
This overpurchasing, however, resulted in massive overstocking (i.e., holding surplus, unsold goods) – eventually cleared through heavy discounting, sometimes at a loss. Thankfully, in 2026, the industry is getting back to healthier inventory levels.
Distributors and retailers have realized that excess stock doesn’t just strain budgets but also drains their team’s time and attention, undermines supply chain efficiency, and overloads the planet with unnecessary waste.
That’s why knowing how to avoid overstocking is crucial to business success, especially in industries with short product selling windows, like consumer electronics, where new models arrive one after another, and unsold stock can lose value almost overnight.
What Is Overstock?
Overstock inventory is any item or material a retailer or supplier holds that exceeds actual market demand. In practice, it means that product inflows are considerably outpacing sales.
For businesses, overstock represents stagnant capital – money that is physically trapped in warehouse racks rather than being utilized for growth or innovation.
Overstock vs. Understock
In inventory management, you need to balance overstocking and understocking. If you understock, you run out too soon, miss sales, and frustrate customers who may just buy from a competitor instead.
If you overstock, you end up with “dormant” inventory that sits around, gathers dust, and keeps costing you money to store and handle.
The sweet spot is maintaining optimal inventory levels: enough on hand to keep shelves looking healthy and meet expected demand until the next replenishment arrives.
What Causes Excess Stock?
Overstocking is usually caused by poor planning and unexpected market shifts.
Common causes include:
Inaccurate Demand Forecasting
Nowadays, experience alone is not enough to foresee what and how much customers will actually want to buy in the next few months or the following year. Thankfully, automated, interconnected apps help vendors make better decisions on order quantities.
The Bullwhip Effect
Oftentimes, temporary shortages or supply chain disruptions prompt businesses to rush to fill gaps by over-ordering, only to have customer interest dissipate, sometimes even before the stock arrives.
Supplier Constraints & Minimum Order Quantities (MOQ)
Some retailers are forced to order more than they need simply because suppliers require a minimum purchase volume to fulfill an order.
Shifting Consumer Preferences
In fast-moving sectors like fashion and electronics, trends evolve quickly.
Consider iPhones, with a new product release every fall, making Q4 the strongest sales period for the latest model and the model before it. Conversely, from March through May, consumer interest declines.
How Can You Identify Excess Stock?
To identify whether you’re dealing with overstocking, check:
- Your Days Sales of Inventory (DSI): the average days inventory sits before selling.
- Your Inventory Turnover Ratio (ITR): how often inventory sells.
These metrics show how quickly your inventory (e.g., a product category or a specific SKU) sells through and whether stock is moving or stagnating.
If turnover drops or DSI rises, it can be a sign that you’re holding more inventory than demand can absorb. Monitoring such KPIs also helps you pinpoint low-velocity items that are tying up working capital.
Effects Of Overstocking Inventory: The Bright Side
Overstocking of inventory is not always “bad”. It can actually serve as a vital cushion against unforeseen market volatility (such as post-pandemic stock market crashes) or supply chain disruptions (like Red Sea shipping attacks).
It also offers sellers the flexibility to take advantage of unexpected promotional opportunities or even bundle items to reward loyal customers, potentially increasing brand awareness.
And should you decide to donate your excess stock to charity, you can eliminate unnecessary expenses (e.g., handling and storage fees) while supporting local nonprofits and families in need.
Donation [ of excess inventory ] offers a rare triple win: cost reduction, community impact, and consumer trust.
Disney Petit, founder & CEO of LiquiDonate.
Risks Of Overstocking In Inventory Management
Overstocked inventory can restrict cash flow, a major drawback for smaller firms that lack the capital to absorb such losses.
Furthermore, it increases overall purchase and logistics costs – carrier, warehousing, insurance, and labor.
In today’s flexible, fast-moving supply chains, overstocking often adds unnecessary weight, slowing profit growth.
How To Avoid Overstock Inventory
Being proactive is the best defense. Here are the most effective strategies:
1. Implement Data-Driven Demand Forecasting
Accurate forecasting is the foundation of inventory optimization, boosting service levels by 3-5% while reducing overall inventory by 15-30%.
Use robust inventory management software to integrate data from the warehouse (scanners) with transactions from your ERP. This real-time visibility helps create a “Single Source of Truth” and prevents “hidden stockpiles” that lead to accidental reordering.
2. Set Automated Safeguards
Despite automation, errors can still happen. So it’s worth establishing minimum/maximum thresholds for every SKU so you don’t overbuy or run out either.
Using the ABC analysis model, based on the principle that the top 20% of SKUs often drive around 80% of the value, you can prioritize these “A Class” items for restocking and allow higher stockout risk for “C Class” items (the slow movers) to avoid overstocking.
3. Adopt JIT Management
Another thing you can do is follow a JIT (Just-In-Time) approach, so you receive stock only as it is needed for sales, reducing carrying costs associated with large inventory levels.
4. Centralize and Redistribute Existing Assets
Many companies purchase new inventory while they already own the same items in a different location.
Before buying new stock, analyze inventory across all locations and transfer surplus to locations with higher demand.
For organizations with multiple branches, centralizing excess stock at a distribution hub can save millions of dollars in underutilized inventory.
5. Strategic Disposition Of Unavoidable Excess
If you are still stuck with excess inventory, use these methods to clear shelves:
- Liquidation: Sell bulk quantities to specialized buyers to recover a portion of your investment.
- Bundling: Pair slow-moving accessories with high-demand products to clear shelf space.
- Charitable Redistribution: When products can’t be sold, donation is one of the most caring and sustainable ways to put overstocked inventory to good use.
- Recommerce: Many retailers partner with returns management and re-commerce companies that can take excess inventory off their hands and resell it through secondary channels.
Recommerce may reduce margins, but it clears stock faster and maintains your brand integrity by having your stock sold by a trusted third party.
At the same time, budget-conscious shoppers can access lower-priced products, making it a win-win.
For consumer electronics, Green Wave Electronics offers comprehensive services for excess inventory redistribution, remarketing, and resale – undertaking the entire forward and reverse logistics.
Our flexible solutions provide electronics brands a practical way to move overstock without draining time, space, and working capital. Contact us to find out more!
FAQs
What Is The 80/20 Rule In Inventory?
The 80/20 rule in inventory is based on the Pareto principle, suggesting that 80% of a company’s total inventory value is typically generated by just 20% of its products. These “Class A” items are the most vital for revenue, meaning businesses should prioritize their availability while being more cautious about overstocking the remaining 80% (Class B & Class C items).
What Is Excess Inventory?
Excess inventory is any products or raw materials that remain unsold or unused for a long period, often exceeding what is needed to meet forecasted demand. It ties up working capital and occupies valuable warehouse space, increasing the total cost of ownership.
What Is Another Word For Overstock Inventory?
Overstock inventory is also referred to as excess inventory or surplus stock. Near-synonyms are obsolete inventory for items that are outdated or no longer in demand; dead stock (or dormant stock) refers to products that haven’t sold for a long time and are unlikely to sell in the future.
