What is dead stock?
Dead stock inventory are items in your business that has not been or cannot be sold – inventory that has never been worn, used, or sold and has been on shelves for an extended period of time. Businesses that do not use good inventory management systems can end up having dead stock inventory remaining on their warehouse shelves, only noticed at the annual stock take, gaining dust and becoming useless and obsolete.
Dead stock inventory inevitably costs your business money, not only in the inability to recoup the investment of the inventory itself but also the space it occupies in your warehouse or storage space. Here we have collated three main causes of dead stock inventory and how to avoid this.
3 Main Causes of Dead Stock Inventory
1. Defective product
This is where there is something wrong with the product, whether it is poor engineering or design. Defective products are the least troubling type of dead stock inventory because it may be possible to return the products to be fixed or replaced. For example, you can contact the manufacturer and request a return authorisation (RA) for the merchandise where there is a clearly defective product. The vendor would likely issue you a credit for the inventory stock.
2. Low demand
This type of dead stock inventory is one of the hardest to deal with. Your business bought it expecting it to sell, but the customers simply do not like it. This may be because the product is no longer popular, it has been rendered obsolete by newer products, or the product’s initial appeal was never strong to begin with. The best thing to do in this situation is to minimise losses by discounting the price and moving merchandise out as fast as possible.
3.Not accepting reality
Discounting should move dead stock but if a retailer does not act, the items will continue to collect dust, costing money. However, retailers might hold on to dead stock inventory hoping it will sell. This may be due to a belief the retailer has that the merchandise is worth more than what consumers are willing to pay.
If prices are kept high under the assumption that customers will change their minds, it can lead to products not being sold at all. The retailer might base the actions on the costs they paid to procure the merchandise and the profit projections that led them to stock the products in the first place.
For example, a high-end computer that has been on the market for a while will eventually face competitor devices and then become outdated. A retailer may try to stick with the original price for the product based on an assumption that customers will continue to pay the amount even when other options are available.
This dead stock inventory takes up space on shelves that could have been used to fill in products in greater demand. It’s better to free up whatever cash you can by discounting the dead stock to focus on more profitable products.
Using inventory management systems to mitigate dead stock inventory
Using good inventory management systems can alert you to issues that can help identify dead stock inventory, that can be addressed in a timely manner. In addition, try ordering smaller quantities when offering new products until you know how they perform, even if the price per unit cost is higher. Survey customers to learn what other products they want, research of this kind is valuable. In the relatively same way base new product offerings on industry and customer research rather than gut, intuition, or personal interests.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.