Why Overpurchasing Is Wasteful

Posted on February 26, 2013 | in 2011 Baseball Winter Meetings, Baseball, Defects, Inventory, Lean Wastes, Motion, Safety, Small Business, Sports, Transportation | by

Stuffed Animal PigIt’s very easy to get caught up in volume discounts – buy more at one time or buy earlier, and we’ll give you a price break on each piece. It happens with consumers and businesses alike.

So why is overpurchasing bad?

– If it’s not inventory that you can consume right away or with some degree of predictability, then it’s essentially excess inventory that ties up liquid assets (cash) that aren’t quickly converted back.
– Excess inventory requires space and storage, which consumes liquid assets.
– Excess inventory taking up space could become a safety issue (flammability, narrowed walkways, storage up high, etc.).
– Excess inventory could cause operators to walk further or reach around items in their way.
– Handling excess inventory means using transportation equipment to move it out of the way.
– Overpurchased materials can spoil (if it’s food-related) or simply become untimely (clothing lines falling out of season).
– And so on and so forth…

The days between the Baseball Winter Meetings and Opening Day for Major League Baseball and Minor League Baseball are the days when marketing and promotional staffs are making their plans for purchasing giveaways and promotional items, as well as stocking the merchandise stands.

It’s also a very popular time for buying inventory pretty far in advance of when it would be needed – baseball teams tend to have promotional items scheduled for the entire season by January or February of the coming season to help attract ticket buyers to buy their tickets early. That means teams are putting liquid assets into production and (possibly) delivery of products in February when they’ll actually be used in September.

Let’s be clear – it’s not always the fault of the team. A lot of the overpurchasing problem lies with the manufacturer and distributor.

My friend Susie owns the athletic store Up and Running, with locations in/near Dayton, Ohio. She sells running shoes and apparel, plus specialty athletic gear. I’m a big fan. They are coming out of the winter season and swapping out their cold inventory for spring and summer gear and putting discounts on the items they’re taking down. Here are a couple quotes from the email she sent out to her customers:

Believe it or not, we buy apparel 6-8 months in advance of the season.

This year we weren’t so lucky…yep, we GOOFED. We bought more than you wanted and needed, and maybe the weather has played a bit into it too.

That’s a pretty big Hail Mary being dialed up, to have to predict a season’s purchases 6-8 months in advance.

The lack of flexibility being offered by the apparel manufacturers with regard to product offerings and availability is almost indescribably frustrating. Manufacturers tend to have their product made in huge quantities on short runs in China. Once manufacturers collect orders from retailers and make orders for Chinese production, that’s pretty much it. Once the order is done, it probably won’t get ordered again since they are planning a 6-month season for their gear and wouldn’t need to make it again once it’s out of season.

Once it’s produced in China, it’s shipped and what is shipped is all there will ever be shipped.

This is not too painful for the big box athletic retailers like Academy Sports or Dick’s or Foot Locker because their purchase levels are so high, but especially painful for smaller independent athletic retailers like Up and Running. Once items run out at Up and Running, there are no more to be had. If a Dick’s Sporting Goods store runs out of an item? Maybe they can have another one shipped from another store. Dick’s Sporting Goods can spread inventory consumption over many, many stores and comfortably take the hit on transportation and handling.

team merchandise standNow let’s talk about merchandise stands and stores.

Buying lots of hats and key chains and baseballs and mini-bats and t-shirts and shot glasses all at one time for the entire season is common. Most of these items are made in China, and once again they tend to all come in through one order and one shipment.

However, teams are under the impression that putting all of the inventory out at one time is more enticing to a browser. Is it? By seeing 80 of a single hat design on a wall, am I more inclined to buy? Does a big bin of baseballs with a team logo entice me to purchase one? The scarcity and urgency certainly aren’t there, so that suggests to me that I can wait and leave my liquid assets in their liquid form until I feel the need to make the purchase.

Seeing a whole slew of mini-bats or hats also suggests to me that a certain item is unpopular or performs poorly and maybe not worthwhile of a purchase. (Call it crowdsourcing of purchase decisions and recommendations, I suppose.)

To recap, overpurchasing is a risky proposition but sometimes it’s a supply chain issue and not totally on the shoulders of the purchaser.

 

 

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One Response to “Why Overpurchasing Is Wasteful”

  1. Js. Gilberto Concepcion G., Ph.D., PE. says:

    It is a matter of understanding just in time and how to appy it a your major economic convenience depending on each one conditions.

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