Surplus products are any products that are not required to meet current demand. In some cases, the surplus is deliberate, if the producer believes that the goods will be needed to meet future demand within a reasonable period of time. A surplus in products may also come about by failing to accurately project consumer demand, resulting in a high inventory of finished goods. When this is the case, the manufacturer may consider different strategies to reduce the inventory and avoid a higher tax debt.
While surplus products are normally thought of in terms of physical goods that are sold to consumers, other forms of surplus are also common in the business world. For example, a business may find that it employs surplus labor if there is a downturn in the demand for the goods the company manufactures. In this scenario, the business may choose to retain the labor force if the downturn in demand is projected to be short-term, or lay off a portion of the work force for a period of time, recalling those workers once demand increases. Both options are sometimes less costly than terminating the employment of the surplus labor and having to train new personnel when consumer demand increases.
When any type of surplus products exist, there is the need to determine what should be done with that surplus. If the cost of keeping the products in inventory is prohibitive, the producer may choose to simply destroy the finished goods, and avoid both the costs of warehousing the goods and the related tax liability. If the investment in the goods is considerable, the producer may choose to offer those goods at reduced prices in an effort to attract attention from consumers. The surplus can also be used to trade for products that the company needs, allowing the business to obtain supplies without actually touching its cash flow.
Deciding how to manage surplus products to best effect is not always a straightforward task. The surplus value of the goods must be considered, as well as how long current economic conditions will prevail and keep consumer demand at a lower rate. There is also often the need to adjust the production process, so that the operating surplus produced is adjusted to meet current needs and minimize the chances of increasing the stockpile of surplus goods. By evaluating the exact circumstances surrounding the creation of the surplus, properly assessing the present and future condition of the market, and adjusting production accordingly, it is possible to incrementally dispose of the surplus products in whatever manner is in the best interests of the producer.