What is dead stock and how to eliminate it

A CFO in a wholesaling business recently described dead stock as piles of cash in the corner of a warehouse that she can’t access. Dead stock are products that don’t sell and remain in the warehouse or are sent back to the warehouse from the retailer. Dead stock reduces cash flow that could be used to purchase new revenue-generating stock. It also takes up precious space that profitable products could occupy. Inventory management software strengths the success of reducing deadstock.

In this blog we’ll discuss ways to reduce dead stock and release the cash that’s tied up in inventory.

Identify cause of dead stock

Some causes of dead stock include the end of a season or product life cycle, a new competitor, or the loss of a significant customer. Begin by prioritizing inventory by investment value, shelf life, and turnover to identify surplus inventory. Next, determine the quantity you need through the practice of product forecasting. Also, consider short-term supply needed to satisfy unexpected orders. Once you determine the underlying cause of your dead stock, you can tailor your purchasing criteria and policies to reduce future dead stock inventory.

Monitor and prevent future dead stock

Many times, dead stock can result from poor purchasing decisions. It's difficult for companies to avoid a warehouse full of dead inventory if they don't have the tools in place to monitor their inventory purchasing process.

By subscribing to a business intelligence tool like Phocas, you no longer have only static reports. Top-end BI software enables you to drill down even further to identify the issues, as well as unique opportunities. Now you can monitor things like inventory-to-purchase ratio, stock turns, slow moving stock and GMROI by product group, manufacturer, product, territory, and store. This will empower you to eliminate dead stock, gain a greater margin on slow moving products, and set pricing tiers. With daily updates, you can query as needed, resulting in accurate forecasting and refined inventory management.

Eliminate dead stock from your warehouse

If, despite your best efforts, you end up with some stock that just won’t sell, consider various ways to salvage some of your investment. First, where possible, return the product to the supplier for cash or credit. When establishing a relationship with a new vendor, negotiate a flexible return agreement. Be sure to use your business intelligence software to track and flag products that are nearing their return date.

If you are unable to return the product, package it with another product that is in demand. This will help you avoid selling dead stock items at cost, and may possibly increase the sales of the other product. If other promotions don’t work, take more drastic action such as offering clearance discounts and selling the product at cost price or even below. See our white paper on Cross Selling and Up Selling opportunities for more on this.

With the right business intelligence software, procedures, and strategies in place, companies can mitigate the impact of dead stock. Your inventory is your investment.