What is Dead Stock?
Part of the inventory management process is determining what is dead stock and how to minimize it. Dead stock inventory is inventory that can’t be moved, either because it became obsolete, expired or demand diminished. It is extra inventory that goes above and beyond the amount you would choose to keep on hand for safety stock. Some industries face a bigger problem with deadstock inventory eating into their profits, therefore they must try to avoid it or find a way to move it.
What does deadstock mean for your business?
If you can’t unload excess inventory, dead stock can cost your business money several ways:
- Inventory you can’t move takes up room on your shelves, costing you dollars in storage fees.
- Most of the time, dead stock results in lost profits. But if you must discard goods because they are no longer good to sell (expired), then you can also lose on your initial inventory investment.
What should you do with dead stock?
The way to alleviate the problem will depend on what kind of dead stock you have. For example, if your deadstock item is a spoiled gallon of milk, you have no choice but to throw it away. Dead stock inventory management depends on your industry and nature of your products.
- Expired goods – these types of products may be food items, chemical, pharmaceuticals, or cosmetics. Since they must be consumed before the expiration date, when they are still on your shelves after said expiration date, they are no longer saleable. The best way to handle this type of deadstock is to work to prevent it. One effective way to reduce perishable dead stock inventory is to track it with lot tracking capabilities, easily handled with SOS Inventory software. Lot tracking allows you to log each material by expiration date and locate it wherever it may be in its life cycle so you can ensure you are always moving first in first out to deliver fresh items to your customers.
- Obsolete inventory – if you’re in the furniture or clothing business, your inventory is passe within a few short months. Although it doesn’t spoil, once the fashions change, you won’t be able to get full price for your inventory. Your best bet is to offer it at a discount or offload it to a discount warehouse at a lower price. The longer this inventory is retained, the more it decreases in value; therefore, unloading it at a discount rate will bring in more money than holding on to it.
- Overages – perhaps you just have more inventory than you can move and it’s taking up space in your warehouse. One way to move it is to offer a volume discount to your distributors and wholesalers.
Even smart inventory planning can sometimes go awry. If forecasts indicate demand for a specific quantity of goods, but then demand drops for some reason, i.e., economic or health disasters change the course of consumer buying habits, you could end up with more inventory than you are able to sell.
If demand slows down, you may need to adjust your purchase order behavior to adapt. Reorder points should be periodically recalculated to keep ordering in check with consumer demand.
What is dead stock doing in your inventory if not eating up your profits? You can, indeed, get it under better control regularly by managing your inventory with SOS Inventory. With SOS Inventory, you will always know how much inventory you have on hand in all stages of production. You can run product reports in a snap to find out a wide variety of details about performance at any stage of the game.
Being proactive in managing your inventory will help to reduce dead stock and keep more money in your pockets.