With the recurring pandemic, the issue of large-age inventory has become one of the more prominent problems for manufacturers and distributors. How to effectively avoid the generation of large-age inventory and minimize losses across the supply chain? Based on past experience, the author offers suggestions and digital application cases to inspire manufacturers and distributors.
Returning to the essence of the problem, large-age inventory occurs when the quantity of goods purchased exceeds the speed of sales, leading to slow-moving stock—a dynamic process. There are multiple causes: inaccurate distribution, overstocking, channel disruptions due to unexpected events, and poor customer inventory management. Solving the problem requires addressing both prevention and post-event handling.
Establish an Early Warning Mechanism: Prepare for the Worst
Every manufacturer and distributor should establish and diligently implement a shelf-life management system, especially for products in the introduction and growth stages. The "red-yellow-green light" early warning mechanism is currently an effective management method. Divide the time until product expiration into three zones: green, yellow, and red. For example, products with less than 1 month to expiration are in the red zone, those with 1-3 months are in the yellow zone, and those with more than 3 months are in the green zone. Different zones require different management actions.
For instance, products in the green zone are in a normal state; the main management action is to maximize product visibility at the point of sale to accelerate channel turnover. Products in the yellow zone are in a warning state; management actions should focus on inter-channel stock transfers, enhancing display atmosphere in high-consumption outlets (e.g., checkout displays, full refrigerator layers), and ground promotions in core business districts. For products entering the red zone, management actions should focus on inventorying promotional resources and expanding "sewer" channels (e.g., discount outlets).
However, it is crucial to note that having these measures does not mean you can rest easy. The approach to product shelf life is a process; if products are not handled well in the previous stage, they will move to the next zone, which requires higher investment in manpower, materials, and finances. Therefore, the core of the shelf-life management early warning mechanism is to identify problems as early as possible and quickly predict and resolve them.
Additionally, for manufacturers and distributors, this approach has inherent difficulties: how to conduct routine shelf-life statistics. The conventional method is to conduct monthly or weekly inventory checks of channel or customer stock, but accuracy is hard to guarantee. Often, customers pay insufficient attention early on, and only when products enter the red zone do they hastily urge manufacturers to resolve the issue, leaving sales representatives in a passive position. The best approach is to use a "one product, one code" channel digital management system, where scanning box codes or bottle codes with a mobile phone automatically links to the product's production date, and the system backend generates shelf-life management early warning reports categorized by sales region and salesperson. Specific operations will be discussed in a subsequent article.
Implement Warehouse Management: Standardize Operations
The initial path of product circulation is through the warehouses of various channel customers. Lack of professional warehousing and distribution management can easily plant hidden dangers. During market visits, the author found the following issues: after products were delivered to a distributor's warehouse, they were stacked wherever space was available, ignoring the shelf-life dates of each stack, causing old stock to be buried deep in the warehouse for months or even up to half a year. When shipping products daily, workers had no concept of "first-in, first-out" (FIFO) and simply took whatever was convenient. Additionally, some customers received products from the manufacturer that were not the freshest but were old stock transferred from other markets, with dates even older than those in the warehouse. Customers did not notice until they had shipped out all other stock and discovered that this batch was already nearing expiration.
To avoid the risk of products not being managed properly in customer warehouses and increasing the risk of near-expiry, here are some suggestions:
- Warehouse layout should follow the principle of "new stock inside, old stock outside."
- Products should be displayed by production date, with clear labeling. Each stack should have its production date posted and updated in real time.
- When products enter or leave the warehouse, the shelf-life dates should be recorded to ensure FIFO.
The introduction of digital chip technology can improve management efficiency. By embedding chips in box packaging and using palletized warehouse management, scanning devices can quickly identify basic information about products on each pallet, establishing a digital inventory management system in the backend. When products are shipped in or out, scanning product information quickly prompts placement and retrieval positions according to the principles of new stock inside and FIFO. Additionally, you can set a warning shelf-life in the backend; once a product reaches the warning zone, the system will alert in the backend and provide real-time feedback to the responsible person.
Seize the High Ground for Sales: Display in Prime Positions
To handle large-age inventory, first pull up historical data on sub-regions, sub-channels, and the top 20% of stores to truly understand where the products were sold and to which consumers. The traditional broad-brush distribution method is no longer suitable in the era of consumer sovereignty; precise distribution should become the core concept of channel marketing. Here are some specific handling suggestions:
Shorten the chain: directly allocate goods to high-sales outlets in core channels to accelerate product digestion. Be sure to understand in advance the target outlets' requirements for shelf life; many modern channels like convenience store systems have specific shelf-life requirements. Additionally, many channel owners are resistant to old stock, so communicate in advance to avoid suddenly sending old goods and damaging relationships. During a market visit in eastern Guangdong, a salesperson encountered this issue when handling old stock: they applied for promotional materials like power banks for internet café owners, who readily agreed to help dispose of a batch of large-age products.
Display in prime in-store positions to create a hot-selling atmosphere. Use customer relationships or paid placements to strongly display near-expiry products at checkout counters, coolers, end caps, and other advantageous positions. Ensure products are neatly and fully stocked, and use all available materials such as price tags, wobblers, posters, shelf talkers, and hanging banners.
Promotional pull: use gifts and bundling to accelerate sales. Based on the target consumers of the distribution channel, purchase some gifts for in-store promotions. Depending on the gift's value, you can bundle with a single SKU or offer buy-one-get-one on full boxes.
Promotional push: take the initiative. Around the target consumers' life trajectories, such as business districts, snack streets, university towns, and other densely populated areas, hire promoters and set up stages for promotions. However, using this method to handle near-expiry products can harm the brand, so use it cautiously.
Expand "Sewer" Channels: Quickly Stop Losses
For near-expiry products in the red zone, the most effective way is to find "sewer" customers. At this stage, products should be discounted, and it is recommended to choose relatively closed channels to minimize impact on marginal markets. These typically include closed factory areas, logistics parks, fruit and vegetable wholesale markets, early morning farmers' markets, and discount stores. Consumers in these channels are price-sensitive, seek value for money, and have relatively stable product flow, allowing for faster disposal of large-age inventory and reduced losses.
Seek cross-industry cooperation to leverage sales. A certain brand conducted a joint activity with JD.com. The JD Express App, which focuses on low-priced quality goods, aimed to drive offline traffic. They cooperated with beverage manufacturers: consumers who downloaded the JD Express App and scanned the promoter's QR code received a coupon, allowing them to choose any beverage for just 0.01 yuan. The costs were mostly borne by JD.com. With rising offline customer acquisition costs, many e-commerce platforms have high budgets for traffic generation. If you can secure such cooperation, this low-cost, high-impact promotional format is an excellent approach.
However, when using online channels to handle old stock, be careful to choose to-C platforms like Ele.me to avoid product flow spilling into distribution channels and affecting traditional channel operations.
Manufacturer-distributor collaboration: strive for gift conversion. Many manufacturers have annual brand promotion gift budgets or employee welfare budgets. When large-age inventory arises due to objective reasons, distributors can collaborate with manufacturers to apply for converting the stock into gifts or employee welfare.
But converting to gifts, like the promotional methods mentioned above, can cause greater brand damage, so it should also be used cautiously; employee welfare should also be communicated in advance.
Cooperate with designated suppliers and leverage group buying leaders. With the recurring pandemic, traditional channels have suffered, and distribution channels have focused on some government-designated channel suppliers and community group buying. Epidemic-affected provinces should actively seek cooperation with them, allocating more profits to channel partners and community group buying leaders.
In fact, besides the pandemic, many large-age inventory issues arise from manufacturers over-pressuring distributors, with insufficient attention to precise distribution and market sales capability.
Therefore, returning to the current discussion on digital marketing in the FMCG industry, manufacturers and distributors should strengthen the empowerment of digitalization in their business systems, making marketing actions precise, resource allocation focused, product circulation visible, and brand fans private-domain, so as to truly build a more stable development path for the brand.
More Articles
About the author: Xing Renbao, with 14 years of marketing management experience, has served at Coca-Cola, Yili, Red Bull, and other well-known FMCG companies, focusing on corporate marketing diagnosis, manufacturer-distributor relationships, channel operations, and digital transformation.
Are you "watching" me?