With a big warehouse, managing inventory stock can be a challenge. It is a delicate balance to optimise your inventory stock if your warehouse stocks too little, you could lose customers, but if you stock too much, you might end up with dead inventory.
This article outlines what dead inventory is, how it happens, and how to manage it.
What is dead inventory?
Dead inventory, also called dead stock, is inventory that doesn't sell. It remains in a business's storage facility costing the business money and taking up valuable space on the shelves. Inventory management software with reporting features can help to identify dead inventory within a warehouse. Some software can also assist in setting accurate reorder levels based on historical data, to prevent an accumulation of dead inventory in the future.
Dead inventory left unnoticed can cost a company thousands of dollars in extra storage fees and limit workplace efficiency.Common causes of dead inventory
What are some reasons dead stock inventory happens?
1. Customers don’t like the item
Perhaps you thought it would be trendy, but in actuality, your customers don’t like it. This type of dead stock occurs frequently, as fashion changes rapidly and it’s hard to satisfy everyone’s tastes all of the time.
In this situation, the best option is to dramatically reduce the price of the dead stock and get it sold. In order to get it moving, you may need to cut prices 40 to 50 percent.
2. Lack of communication
When communication problems occur between the warehouse and the store, dead stock can result.
Essentially, dead stock happens when the people on the sales floor don’t know how to sell the product. This is normally due to a lack of communication from the warehouse about the finer details of the product.
For instance, if they are trying to sell a new, expensive gadget but haven’t explained all of the benefits of the gadget, it will be very hard for the sales team to sell effectively.
3. Broken or defective merchandise
Dead stock can occur when something is broken or malfunctions.
This could happen when a manufacturer accidentally puts size medium tags on a whole box of size large shirts. If the customer orders a medium but receives a large they will not be happy.
In this situation, when the manufacturer is at fault, they will usually credit you for the defective dead stock and pay for the shipping back to their manufacturing plant.
Implementing an inventory management system can aid in eliminating dead inventory.5 ways to manage dead inventory
Dead stock can pile up in a warehouse.
Before you know it, several seasons or years can go by and you are left with an impressive amount of unsold merchandise.
Not only does it take up space, but it can add financial pressure to your business.
Luckily, it doesn’t have to be as overwhelming as it seems. By addressing the issue piece by piece, you can find ways to better manage your dead stock.
1. Devise a plan
Wouldn’t it be great to wake up to a warehouse free of dead stock. Unfortunately, this problem cannot be solved overnight.
However, you can set reasonable goals with defined time frames to help guide you out of your dead stock situation. It won’t all disappear at once, so look at smaller portions at a time and see how they are dealt with.
2. Look at your sales history
If your dead stock is consistent with certain products, you may need to reassess your order numbers. Look at previous sales history over the last few years to guide your future orders.
If the same items keep reappearing in your dead stock, it might be time to discontinue these purchases. Carefully analyse your history to help you navigate away from future dead stock problems.
3. Talk to your suppliers
If you have good relationships with your suppliers, you can ask if you can return the goods.
Sometimes suppliers will be able to repurpose the products, use parts of it for a different item, or sell it on to a company who can use it; make it so both parties can benefit from the return.
This is not something that should happen frequently, but in desperate times when managing dead stock, it could be a viable option.
4. Sludge
Sludge refers to the bottom-barrel dead stock items that are too old and dated and they just won’t sell.
It’s time to remove them from the warehouse, but you can look at other useful ways to get rid of the items.
5. Sales
Getting rid of dead stock is not quite like running a clearance sale. Since there is less demand for the merchandise, you need to price it differently and only bring a small amount out for sale at a time.
Too much dead stock inventory on offer will put people off as they will be digging through piles of old and undesirable products. Just a handful at a time might spark their interests at the right price point.
