When you're in a business, your inventory is one of your key assets. You want to make sure that you're using it effectively and that it's generating as much profit as possible for your company. But what happens when you have more than enough inventory? In some cases, there are benefits to keeping extra stock on hand—such as being able to meet rising demand or having extra supplies ready for emergencies. However, if you have too much inventory on hand or aren't sure how much you need at any given time, then liquidating excess stock can be beneficial for both sustainability and profitability.
What is ESG?
ESG represents a holistic approach to sustainability that takes into account environmental, social, and corporate governance factors.
Socially responsible investors evaluate possible investments using ESG criteria, which are a set of requirements for a company’s conduct to evaluate how sustainable the companies are. Some examples of these criteria include how companies’ policies address climate change, how they manage relationships with communities and employees, and how they deal with leadership and shareholder rights.
Why is ESG important for your business?
Climate change and the effects of the pandemic have had an impact on businesses, so as a business leader, you need to be aware of these effects on your operations and the communities where you operate.
Many investors realize the need to place greater importance on companies that prioritize ESG. In fact, ESG funds have increased almost 10x in 2 years, from $5.4 billion in 2018 to $51.1 billion in 2020.
Benefits to strong ESG efforts:
- Adopting ESG criteria in your business helps to stay relevant with consumer trends and resilient in future scenarios, especially as 77% of Americans are concerned about the environmental impact of products they purchase.
- Cutting carbon emissions by investing in sustainable practices can save your business money, especially in the long run. As countries begin to enact stricter regulations to protect the environment, you can also save on non-compliance costs.
- Avoid receiving backlash from consumers by practicing sustainable efforts.
- Help improve reputation by supporting the community, especially local communities in need.
- You can attract more talent when you begin to prioritize your relationships with employees - part of the “S” of ESG.
How liquidation fits into your ESG efforts
CPG companies looking for a way to increase ESG efforts can focus on their liquidation program as an easy way to reduce waste while improving the bottom line.
When managing liquidation processes, CPG manufacturers should consider ESG concerns. The manner in which a company liquidates or disposes of inventory can have a significant environmental impact, especially when considering inventory transported long distances, disposal in landfills, and incineration. In addition to affecting the environment, a robust liquidation program can have positive social implications, such as donating product to local communities.
Although there are various benefits to incorporating liquidation programs into ESG efforts, many companies don’t realize the correlation. As a matter of fact, only 64% of companies see liquidation or donations as a pillar of their waste reduction/ESG commitments.
Since excess and obsolete inventory is inevitable - whether caused by consumer habits and demand, over-purchasing, supply chain issues, the pandemic, or a rebranding initiative - you may as well take the opportunity to turn the inevitable into something positive by integrating your excess inventory with your ESG efforts through actions like donations and liquidation.
Sustainable methods to liquidate inventory
Automated liquidation tools
Incorporating tools that automate your liquidation processes can increase your buyer and non-profit network, maximize value recovery, and generate analytics that provides insight into how you can better manage your excess inventory.
Increased buyer networks and embedded analytics make it easy to choose and track to whom you award inventory - giving you more control over your brand. Analytics also make it easy to inform supply chain management (they need to know where inventory goes) and report to sustainability or ESG teams on your impact.
Automated software tools also help you save money by freeing up your team’s time to focus on other tasks. With interactive spreadsheets and features like smart awarding, communication with your buyers becomes more streamlined.
Donate or recycle to nonprofits
Donating your excess inventory is a great way to sustainably get rid of your excess inventory to make room for your other inventory. Not only are you helping out communities in need, but you can turn it into a good PR while even getting tax breaks to help your bottom line.
If you work with food products, another option is to donate the food for animal feed, which saves farmers money and also helps companies avoid disposal fees.
In addition to donating excess inventory, another great way to increase your ESG efforts is by working with companies like TerraCycle that will “recycle the unrecyclable.”
Upycling is the process of repurposing excess products, by-products, or packaging into new materials, mostly for sustainability and environmental purposes. As another alternative to disposing excess inventory and opting to make it a part of your ESG efforts, you can work with upcycling companies if you’re liquidating ingredients, start a new business unit that incorporates the ingredient in a new product, or partner with another company that can make use of your excess by-product. A great example of this is Patagonia working with NetPlus to upcycle fishing nets into clothing.
In the food space, ReGrained upcycles the leftover nutritious grain that comes from brewing beer and partners with other brands, such as Doughp and Semolina Artisanal Pasta, to include their SuperGrain+ upcycled ingredient in their products. ReGrained also has its own line of products made from upcycled ingredients, but understand that collaboration is key when it comes to sustainability.
Using upcycling as a method in your ESG efforts is also a great way to reinvigorate your brand by meeting new consumer trends as sustainability continues to gain popularity. You can check out Upcycled Food Association to learn more about getting started with upcycling.
Protecting brand reputation by liquidating
One of the biggest benefits of incorporating liquidation in your ESG efforts is protecting your brand’s reputation. When dealing with excess inventory, it’s important that you don’t do anything to damage your brand by destroying or disposing of it if it can be avoided.
Various companies have received backlash for disposing or destroying their excess inventory in favor of preserving their brand equity, the social value of a brand. Luxury apparel brands are often the worst perpetrators who don’t want to see their brand equity decline by including their product in discount retailers or donating to nonprofit organizations.
For example, Victoria’s Secret caused consumer outrage when they disposed of their excess inventory when it could have been donated to a homeless or women’s shelter instead of ending up in the landfill. Other companies, such as Nike, Eddie Bauer, and Burberry, have also destroyed their product prior to disposing of them to ensure others can’t find and wear the products.
However, this is not unique to the fashion and apparel industry. In 2021, Boston Beer decided to throw away their Truly inventory rather than discount it when they over purchased.
When integrating your liquidation processes with your ESG efforts, there’s a lot you can do to protect your brand equity if you prefer to not have your brand be sold at discount retailers. Whether you’re liquidating into the secondary market or donating, you can opt to white label or private label your inventory so that it’s not sold under your brand name.
To avoid dealing with consumer outrage over destroying and disposing of excess inventory that could be repurposed, make sure that you have a robust liquidation program in place early on.
Addressing ESG factors and your bottom line at the same time
At the end of the day, throwing out excess or SLOB inventory isn’t good for your business or the environment. While you may think that you’re protecting your brand by disposing or destroying inventory, the potential of consumer backlash may end up hurting your brand even more.
There are a variety of ways you can integrate your excess inventory into your ESG efforts through ways of donations, recycling, automating your liquidation processes, upcycling, or relying on white labeling when selling to discount retailers.
As excess inventory remains an inevitable problem – turning liquidation from a problem into a profit or into an act of good faith can go a long way.
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