Did you know that, on average, 20% to 30% of a company’s inventory is dead-stock inventory? But what exactly is dead stock inventory and why should my business be mindful of it?
Dead stock inventory refers to your business's products that cannot be or have not been sold, and have been stored in the warehouse for an extended period of time.
Having too much dead stock inventory is harmful to your business. It occupies valuable warehouse space that could have been used to store higher revenue-generating products. Dead stock inventory should be disposed of quickly as it is not generating revenue, which results in unnecessary storage costs.
To help your business address the issue of dead stock inventory, we will examine the main causes of dead stock inventory and nine ways you can go about solving this issue.
What Causes Dead Stock Inventory?
When your business forecasts the demand for your products incorrectly, you will produce excess inventory that cannot be sold. This excess stock will end up as dead stock inventory. There could be many reasons for the low demand for your products. For example, changes in customers' preferences or competitors creating new and better products could result in your products being less desirable or substandard.
Lack of Communication
Dead stock inventory can occur as a result of miscommunication between your warehouse and management teams. Your warehouse team might produce more stock then necessary if the management does not communicate the amount of inventory needed to meet customer’s demand. Another potential reason could if management is unaware of the existence of dead stock and therefore does not take it into account properly by reducing production or running deep-discount promotions.
Dead stock inventory could also be due to your warehouse having an excess of broken or malfunctioned products. This could happen when certain products fail your internal quality check and are left in the warehouse or when your customers return defective stock they have purchased from you. If no action is taken to get rid of these inventories, it will result in dead stock inventory.
How To Solve The Problem Of Dead Stock Inventory
To solve the problems of dead stock inventory, there are a number of short and long-term actions your business could undertake. In the short term; you can use various tactics to liquidate your dead stock inventory. In the long term, you can implement strategies to prevent dead stock inventory from occurring. Let us first take a look at the short-term tactics before moving on to the long-term strategies.
The most straightforward method to get rid of your dead stock inventory is to give substantial discounts to increase demand for your products. The discounts need to be large enough so that customers are incentivized to purchase it. While your business might not be able to generate a profit with this strategy, you will be able to recover some of the production cost and increase your warehouse storage space for other profitable inventory.
Create Bundles With Other Products
Your business can create bundles by combining your dead stock inventory with related products with higher demand. Your company can then sell these bundles at a discounted price. By tapping into the higher demand for the related products, you may be able to quickly get rid of your dead stock inventory.
Sell On Online Marketplaces That Sell Excess Inventory
Another option your business can consider is to create listings on online B2B marketplaces selling excess inventory. These websites cater to thousands of companies looking to purchase products at a bargain, making them an ideal target for your dead stock inventory. Some examples of such marketplaces include Tigertrade and Inturn.
Return Products To Your Suppliers
Negotiating with your suppliers to return the dead stock inventory can sometimes be an option. While you might not be able to sell these products, your supplier may know of customers who are willing to purchase these items. Thus, they could be willing to take it back.
Depending on the terms and conditions of your return policy, you usually have to pay a restocking fee to your suppliers. These fees are usually repacking costs to repack and return the products to them. Also, your supplier rarely compensates your returns by cash. Instead, they will often refund you in credits that you can use for your next purchase from them.
Donate To Charity
Instead of just throwing your dead stock inventory away, your business can donate these dead stock inventory to charity. Your products would be put to better use in a charity than in a garbage dump.
Depending on your tax jurisdiction, you could even get a tax write-off by donating to charity. You should check with your tax advisors on what tax deductions will apply for your area if you donate to charity.
Identify Root Causes Of Dead Stock Inventory And Take Actions
Identifying the root causes of dead stock inventory is the most important step to fixing it in the long term. Some common root causes include your product coming to an end of its product life cycle, changing customers trends, and the arrival of new competitors.
Once you have identified the root cause, you can take steps to begin making changes to your purchasing and sales strategies to prevent future dead stock inventory.
Tighten the Purchasing Process
Your business should streamline your purchasing process so your business only manufactures or orders what it needs. You can start by creating better communication protocols to ensure the management and warehouse team are on the same page. Both sides should have the same information on current stock levels and the expected production needs. It is also a good practice to ensure there is a proper chain of command for senior management to approve any orders to prevent redundant orders from occurring and ensuring accountability.
Engage in Demand planning
Your business can engage in demand planning to analyze current and projected demand for your products and create a reliable business forecast. By forecasting your customer demands, you can accurately plan your purchasing needs and ensure that your business does not order excess inventory. This would certainly result in less dead stock inventory.
Track Inventory With An Inventory Management Software
Implementing an inventory management software can make your life easier by offering easy-to-use tools to help you track your inventory. By tracking inventory levels in real-time, you can track which inventory is selling well and which inventory is dead stock. Using inventory management software, you can easily find out if your inventory has been gathering dust in your warehouse. You can then take quick actions to address the dead stock inventory issue.
To prevent dead stock inventory, it is important to have both short-term and long-term strategies to improve your inventory management.
As mentioned in the last point, an inventory management software is one of your best tool to help you track stock movement and prevent dead stock inventory. Here at Sweet, we have just the solution for you- the perfect inventory and order management software for your wholesale business needs.
If you want to find out more on how Sweet can help your wholesale business, click here to get in touch with us for a demo.