Every warehouse hides a balance sheet problem.
It’s not visible in the ERP dashboard, but it quietly eats into margins, one slow-moving item at a
time.
Most companies think “excess inventory” is just a storage issue. In reality, it’s a capital cost
problem that can silently drain 20%–30% of the inventory’s value every year.
Let’s break down why, how to calculate it, and what to do about it.
1. The Real Cost of “Doing Nothing”
Every box that sits idle carries hidden costs:
- Storage (racks, handling, space, climate control)
- Insurance (coverage for items that might never move)
- Taxes (yes, some regions tax static assets)
- Depreciation and obsolescence (value eroding with time)
Add these up, and you’re looking at roughly 25 cents per dollar of inventory value, gone
annually.
That means a company holding $1M in unused stock is losing ~$250K each year just to keep it
there.
No purchase orders, no shipments, no sales, just loss.
2. Why It’s So Hard to See
Ask any operations manager, and they’ll tell you:
“We know it’s there, but it’s not top of mind.”
E&O (Excess & Obsolete) inventory rarely gets the same attention as on-time delivery or supplier
performance. It’s a “quiet leak” in performance metrics… not loud enough to trigger alarms, but
big enough to hurt the P&L.
Part of the reason is organizational:
- Finance tracks value, not velocity.
- Operations track movement, not depreciation.
- Procurement tracks cost, not carrying rate.
The result? Nobody owns the “true cost of idle inventory.”
3. Measuring It (Simply)
You don’t need an AI dashboard to start.
A simple Excel model or BI report can expose the problem.
Here’s a quick formula:
| Annual Carrying Cost = Inventory Value × Carrying Rate (20–30%)
Break it down by category or SKU age.
Flag items with:
- 180+ days of no movement
- Negative forecast accuracy (overestimated demand)
- High storage footprint vs. low turnover
The patterns will reveal themselves fast.
4. The CFO’s Missed Opportunity
Ironically, E&O is one of the easiest sources of working capital recovery, if identified early.
Liquidating just 10–15% of dormant stock can free up hundreds of thousands in tied-up cash
and reduce write-down pressure at year-end.
And yet, most CFOs see E&O only when it’s too late, during audits or fiscal closing.
That’s not efficiency. That’s firefighting.
5. Turning Waste into Working Capital
So what can companies do?
Some try discounts or auctions.
Others simply write it off and move on.
But the smarter move is to connect idle stock to new buyers before it loses all value (especially in
B2B categories where that inventory still has use somewhere else.)
That’s exactly where Supply2Flow comes in.
We’re building a marketplace that lets companies list excess or obsolete stock easily, and as a
unique twist, we reward the employee who lists it with 2% of the sale value.
Why? Because the people who see the waste are rarely the ones empowered to fix it.
We’re changing that.
Excess inventory isn’t just a logistics problem.
It’s a financial inefficiency, and one of the most solvable ones.
Every day you don’t act, it costs you more.
Every day you do, it pays back faster.
So before your next procurement meeting, ask:
“What’s sitting in our warehouse, and what’s it really costing us?”
