“Dead stock is a cash flow killer”, says Jennifer Rosenberg, president of Indianapolis-based Acorn Distributors Inc. “We make money by moving boxes, not by storing boxes”.
Dead stock is that portion of inventory at your store that just won’t sell. There could be various reasons for these to remain on the shelf and not get sold. It could be because of:
- Wrong purchasing decisions – Often, wrong purchasing decisions by sellers could tempt them to buy large amounts of inventory and stock them in their warehouses. The excitement to grow could lead them into the scenario of having to unnecessarily pay for non-moving inventory.
- Poor management of inventory – Undoubtedly, lack of proper track-keeping of your inventory flow and status will lead to accumulation of stock and ultimately increase dead stock.
- Defective product – Sometimes goods don’t sell simply because they are defective. For example, a shoe size might be wrongly marked as 9 when it is actually an 11-sized shoe. In such cases, you can contact the manufacturer and request for the return of the product.
- Lack of proper marketing – When you and your sales personnel have little knowledge about the product or its technical specifications, then you might find it difficult to market it, or to communicate about it to the customer. This might again lead to the customer ending up not buying it.
Now that you know why this is happening, let’s look into how it can be avoided or cut down:
1. Take the help of a good inventory management system
The stock that you purchase for your store can be divided into two components- Cycle stock and Safety stock. Cycle stock is that portion of inventory that is needed only to meet the customers’ demand, between the times you order more inventory from suppliers.
Safety stock is that portion of inventory that is kept as reserve stock. This is retained to meet the sudden increase in demand or for situations such as delayed shipments, supplier lead time, etc. Both have the potential to become dead stock, but safety stock is more likely to enter that zone sooner.
Making use of an efficient inventory management system is a must. These systems give you real-time information about the status of your stock. Some also give automatic alerts when your stock is about to get over. This will help you escape the dead stock scenario.
2. Transfer the dead stock to another company location
Sometimes, there may be cases where some products may move faster at one location, but not at another- they might be geography specific. In this case, recognize the particular store and move your dead stock to that store where it is more in demand. This process is called ‘inventory balancing’.
3. Have a watertight agreement with your supplier
Before procuring your goods from your supplier, if possible, make a watertight agreement that if the products don’t sell beyond a point, they can be returned at little or no cost. This is essential, as it is important to consider the holding cost of inventory too. You would rather replace the dead inventory with faster moving items.
4. Use efficient demand forecasting solutions
It is extremely important to know in advance what to buy. Forecasting the stock you would require in future will help you get rid of a large amount of dead stock. There are many advanced tools that help you with this. Your purchase orders also can be utilized over time to analyze the pattern of your purchase and plan the next one, accordingly.
5. Create urgency
For the slow moving goods, offer discounts, highlight the percentage savings, create urgency by saying that only very few products are available in stock.
6. Bundle products
If your dead stock consists of several items coming under a common category of products like mobile covers, chargers, etc. then you can easily bundle these and create an interesting combination and put a good price on it.
7. Offer free shipping
Free shipping for the product drives in many more people to buy.
Apart from these methods, you can list the slow-moving inventory at marketplaces, at price comparison websites, etc.
Most importantly – prevention is better than cure. Knowing how your inventory flows will lead to a significant drop in the amount of dead-stock you carry at any point in time. Plan your inventory better using a good inventory management software.