Overproduction in the Supply Chain

What Is Overproduction in the Supply Chain, and How Can It Be Avoided?

supply chain overproduction

In early 2017, a new trend took over the Internet and captured the attention of millions of children: fidget spinners. While these had already existed for well over two decades, they suddenly became the hottest toy on the market in a massive surge of effective demand. Accordingly, manufacturers kicked production of these trinkets into overdrive. Small business owners — particularly toy retailers — flocked to order this hot item to satisfy demand. By the latter half of 2017, however, the fad was dead; fidget spinners were now stuffed to the brim in discount bins everywhere. It led stores to have excess inventory and excess supply.

This scenario is a classic case of overproduction of goods, and it’s not a mistake manufacturers or retailers would want to repeat as a matter of habit. In the context of the supply chain, overproduction occurs when more of a product has been accumulated than is required. It’s best to avoid overproduction because it can lead to increased costs when it comes to labor and storage. In some situations — such as those involving “fad” items, new tech, or perishable goods — it can dramatically harm profit margins. And from an environmental standpoint, overproduction also leads to the exploitation of raw materials.

If you want to avoid oversupply without consumption, continue reading. This article will provide insight into this problem and provide some actionable tips you can leverage to mitigate the effects of overproduction.

INDUSTRIES AT GREATEST RISK OF OVERPRODUCTION

Due to various factors at play, certain industries are at a greater risk of overproduction:

  • Automobiles: In the auto world, overproduction carries high costs. The burden of storing and maintaining unsold vehicles can become prohibitive for many car dealers.
  • Healthcare: Many healthcare products — including medications and diagnostic tests, among others — have a shelf life. These goods can be expensive to produce, and overproduction can be a disastrous mistake if these goods are allowed to expire.
  • Fashion: Fashion products tend to be highly seasonal in nature, which can complicate apparel and textiles inventory management. Further, in today’s market of “fast fashion,” trends are changing more quickly than ever before. In this context, overproduction can lead to racks upon racks of outdated, unsold goods.
  • Food: Overproduction of perishable goods leads to an exorbitant amount of waste. This makes careful food and beverage inventory management essential. In food production, a lean supply chain is vital to minimize waste.

CONSEQUENCES OF OVERPRODUCTION

Beyond being a major problem for shareholders in the supply chain, overproduction of goods impacts everyone. When more goods are produced than is necessary, businesses, consumers, and the environment each pay the price in some way.

For Businesses

Overproduction can lead to clogged storage areas, as well as confusion about where to keep finished products and items in progress. Staff and equipment may be kept busy managing the excessive items. For industries at the greatest risk of overproduction, like those discussed above, businesses may have to dispose of or destroy goods. Ultimately, each of these problems results in a loss of profits.

For Consumers

While overproduction can lead to deep discounts on some items, the negative consequences outweigh this benefit. The problems that businesses may face from overproduction can impact the goods and services consumers end up receiving. When supply chains are burdened by overproduction, product availability and diversity can suffer, making it harder for consumers to acquire essential or niche products. Sustainability-minded customers may also avoid patronizing businesses that do this, as the environmental impacts of overproduction are numerous.

For the Environment

The simple truth is that there are a finite amount of resources on the earth, and overproduction represents a massive waste. While some industrial suppliers are making an effort to address this, using energy and other resources to manufacture goods takes its toll on the planet in the form of carbon emissions. When those goods are then later disposed of, they clog landfills or, worse, find their way into natural habitats and oceans. This contributes to the approximately 5.3 trillion pieces of trash in the ocean today.

TIPS TO AVOID OVERPRODUCTION IN THE SUPPLY CHAIN

In the face of fluctuating demand, supply chain disruptions, or other issues that may arise, it can be difficult to avoid overproduction. However, there are some best practices you can follow to minimize your chances of experiencing this issue. If you want to keep your profit margins healthy, keep your customers happy, and reduce your impact on the planet, review the following tips.

Eliminate Waste When Possible

Eliminating waste in production is key. To do this, begin by assessing how you manufacture goods and otherwise conduct business. Your end goal should be to provide an optimal customer experience. There are many methods to reduce waste, and it’s helpful to determine which may apply to your organization.

If something in your production processes does not help you meet this objective, consider whether it can be streamlined or eliminated. For example, keeping enough stock on hand so that customers will not encounter shortages is smart; however, having six or more months’ worth of stock might lead to excessive costs while providing negligible benefits to customers.

Review your production lines with this mindset. As you do so, speak with your employees about their ideas for reducing waste. Keeping each employee on the lookout for opportunities to streamline manufacturing and administrative processes can help you reshape your organization for the better. Reducing wasted time, inventory space, and goods will help you avoid overproduction.

Make Demand Data Transparent

A lack of data can lead decision-makers to make errors when ordering goods. If a supplier was unable to deliver the number of required goods one month, it can be tempting to order an abundance the next month. Making gut purchases like this can ultimately lead to overproduction.

However, adequate data access can lead to informed decisions by eliminating guesswork. Relevant shareholders in your supply chain should have access to data about consumer demand and existing stock in order to prevent overproduction. Using a tool like Fishbowl Manufacturing can make all relevant data available to decision-makers and reduce overproduction.

Facilitate Collaboration

Focusing on avoiding overproduction and, more broadly, making a negative environmental impact should be a core part of your brand identity. Adopting a sustainability-focused supply chain is made easier when all hands are on board. As noted above, you should encourage employees in all areas of your organization to help identify potential areas of improvement when it comes to sustainability and streamlining the supply chain.

Keep employees engaged in your mission by facilitating collaboration across different departments. There are many ways to achieve this. For instance, you can reward employees for identifying areas of improvement or encourage competition among employees for reducing waste.

Avoid “Created Demand”

The concept of avoiding the creation of demand seems counterintuitive to basic marketing principles. “Created demand,” however, refers to efforts to generate demand where none exists. This may apply to new products with highly niche use cases, for example. Untested, unproven product concepts have a habit of ending up in the clearance aisle.

A good practice to avoid overproduction is to meet existing consumer needs, rather than attempt to carve out a new market for yourself. In general, you should base your product concepts on what your customers need — not on creating a product, then creating the need for it.

Creating goods that meet a proven need is generally more sustainable. Perform market research to determine offerings that compliment your existing goods and appeal to your target demographic. If you need guidance on this, simply ask your customers what they would like to see on your shelves. Surveys are a great way to dial in on your next successful product or service, for example.

Ultimately, no matter how well you study the market, you can never tell if your finished goods would satisfy consumer demand. To avoid the risks of insufficient demand and surpluses, come up with a commodity or service that will be around for a long time.

Image Source: https://pixabay.com/photos/ikea-warehouse-industrial-tempe-2714998/

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