Short- and long-term surplus stock

Typically, distributors carry more inventory than they require to meet their customer demands. Up to 30% excess is not unusual, and because inventory is your largest asset, it demands close attention. Surplus stock is that quantity of product that is in excess of the amount needed to maintain normal demand. It is an inevitable part of a wholesale distributor’s environment. The key is to watch it constantly, and avoid excessive amounts of surplus, or surplus that is considered long-term, without sacrificing customer service.

You can take these actions to manage surplus stock and make space available in your warehouse, depending on whether it is short-term or long-term:

  • Transfer excess stock to other branches
  • Return the stock to the vendor
  • Lower the price of items with excess inventory
  • Offer special commissions to your sales staff for the sale of surplus merchandise
  • Sell the excess inventory to a competitor
  • Donate excess stock to a non-profit agency
  • Discard it and take the write-off for your financial statement

Short-term surplus

Short-term surplus stock is stock that is available to sell in excess of line point plus order quantity. This formula is used to calculate short-term surplus:

  • [On Hand – Reserved – Committed – Backordered – Demand + Received – (Line Point + Order Quantity)]

If you use the Min/Max order method, order quantity is not included in this formula. When a buyer reviews the Purchase Entry Recommended Replenishment Action Report, surplus stock in other warehouses can be listed so that it can be considered for transfer instead of buying more from the vendor.

You can also monitor your surplus stock using the Product Surplus Stock Report. This report lists both short- and long-term surplus so you can differentiate those products that can be transferred to other locations from those that should be returned to the vendor or sold off with a price reduction. Export the output to a CSV file that can be sent to your vendor or distribution warehouse for approval. Then, import the CSV file into Transfer Entry, or Purchase Order Entry to create PO RMs.

Long-term surplus

Long-term surplus is defined when you run the Product Surplus Stock Report. The number of months to be considered as long term is user-defined. This value is usually 6-13 months, but you can specify up to 25 months. This formula is used to calculate a long-term surplus point:

  • Average monthly usage * Number of Months Considered Long Term

This second long-term surplus point is calculated to use as a comparison:

  • Line Point + Economic Order Quantity (EOQ)

Each surplus point is subtracted from the product’s available quantity for sale in separate calculations, and the larger of the amounts are shown on the report as long-term surplus. The This formula is used to calculate the available quantity for sale:

  • On Hand – Reserved – Committed – Backordered – Demand + Received
Note:  You can select Usage Rate or Actual Monthly Usage as the long-term surplus calculation method in Product Line Setup-Order or Product Warehouse Product Setup-Ordering.

Product conditions that contribute to surplus

The long-term surplus point is calculated differently for these product types. The Product Surplus Stock Report contains options to include them.

  • Nonstock products: Because the long-term surplus point is zero, the long-term surplus is equal to the available quantity for sale. These products are identified with the surplus type code of NS.
  • Order-as-needed and Do Not Reorder products: Because the long-term surplus point is zero, the long-term surplus is equal to the available quantity for sale. These products are identified with the surplus type code of LTO.
  • Frozen Permanently: The long-term surplus point is calculated as Line Point + Order Quantity. Products that are permanently frozen are identified with the long-term surplus type code of LTF.

New products are be considered for long-term surplus. Normal long-term surplus is identified on the report with a long-term surplus type of LTU or LTP. LTU is used if the available for sale quantity exceeds the user-defined number of months supply. LTP is used if the available for sale quantity also exceeds line point + order quantity, in addition to meeting the LTU criteria.