Supply chain surpluses can be risky

Many companies focus on ensuring their supply chains will survive in the event of a disaster that limits procurement, production or shipping, and have alternative strategies planned in the event that a glitch limits their capability to continue to serve consumers. However, having a supply chain surplus can be just as large of a problem for some enterprises.

Creating oversupply has risks
Having an oversupply of materials or finished products can be financially risky for any corporation that sells consumer goods, especially merchandise that has a short shelf life or is quickly outdated and replaced with newer models, such as electronics.

Businesses that fail to properly forecast consumer demand or plan to get ahead with a larger supply of goods could be risking profits with this strategy. If a company has too many components or merchandise consumers aren't buying, the business is missing out on potential sales and has also lost money in the purchasing, production and shipping process. Similarly, if a corporation purchases too many parts or has too many devices made, technological advancements could be made before the initial run sells through, meaning the firm will be left with a surplus of products consumers no longer find desirable as they seek a newer model.

Some corporations may be lured into creating a surplus of product due to a previously successful model that sold out quickly, low direct material cost or by watching a competitor's similar merchandise become a hit with consumers. These scenarios could cause some to believe oversupplying is the right tactic to bring in huge profits and gain new customers. However, these could be poor reasons for a company to determine it needs a supply chain surplus.

Vast quantities can sink an industry
In some industries, oversupply doesn't just have the potential to bring one company's profits down - it has the potential to sink prices for many corporations. The Wall Street Journal reported that vast oversupply of raw materials ranging from crude oil to copper to cotton are resulting in dropping prices, lowering the forecast for such commodities in the coming months.

The source reported that enormous stores of crude oil have resulted from increased domestic production due to new technology and industry exploration. With such a surplus and still-low demand across the globe, U.S. oil futures are down 13 percent, which could spell trouble for many companies in the industry.