A surplus inventory is when a company’s inventory has an excess amount of what is needed, whether it is for product development or an excess of products for the company’s own set limit. While some company managers will see an inventory surplus as something positive, company’s selling items with expiration dates may see an inventory surplus as a negative, as the surplus is essentially waste if it is not sold in time.
An inventory surplus can be defined in several ways. If the inventory has a set limit of items in the inventory, the limit can be compared to the actual amount in the inventory. The inventory is in surplus, if the amount in stock surpasses the limit set by the company. Another way of identifying surplus is looking at the stock space. Some inventories are full, if the shelves are stocked in a proper manner. If items are on the floor or hidden away, the inventory may also be in surplus. Lastly, the inventory manager can examine the inventory’s purchasing budget to see if the company has ordered more than usual. This method only works if the purchasing budget is consistent each month and the products ordered are identical for each order.
Surplus as Assets
Since the items stocked in an inventory have a certain monetary value, an inventory surplus can be considered an asset for a company. This is the case if the items in inventory can be sold months down the road or do not have an expiry date. For example, electronic equipment is a positive surplus to have as it can increase the inventory’s overall worth, which can increase the asset value. The electronic equipment needs to be in demand and able to sell to be considered a valuable surplus.
Surplus as Liability
An inventory surplus can be a costly affair, especially if the items in the inventory have an expiration date or must be used before a given date. For example, a restaurant with a surplus of meats or dairy cannot sell dishes with the meats or dairy after the expiration date has passed. This is a health and safety issue to the customers.
Handling Negative Surplus
Companies that are in the situation where they have a surplus of items must find a productive way to use the surplus to avoid having a monetary waste. Many companies will use the surplus raw materials to create more products and have a sale that benefits the end user. This can include buy-one-get-one-free sales or simply purchasing products at a discounted price. The end goal is to get a profit despite having a surplus.