Inventory management is one of the significant challenges that every retailer may encounter. The longer retailers fail to sell the pile of inventory in their warehouses, the more costs they incur. In these situations, on one hand, it is the accumulating unsalable goods on the shelves of warehouses that can affect the bottom line of the retailers and on the other hand, the rental costs and other associated expenses that put extra burden on wholesalers. In this article we will explore the concept of dead stock and find out the answers to the following questions:
How to avoid dead stock in the first place?
What are the implications of having dead stock in warehouses?
How to manage dead stock?
Dead stock as its name implies refers to the inventory items that are dead; i.e. goods that are no longer saleable and are not going to be sold in the foreseeable future. As stated earlier these items take up a vast space in warehouses which could be otherwise filled by products that have their own customers and can be sold in a fraction of time. Dead stock which is also known as obsolete inventory usually is stored in warehouses or stockrooms of brick and mortar stores though this problem is not limited to brick and mortar stores and sometimes even affects the e-businesses and online stores.
Retailers fail to sell their inventories for various reasons and as a result incur considerable costs due to the existence of dead stock in their warehouses. Following are some of the common reasons for dead stock.
Inferior Quality of Goods: Customers’ satisfaction usually can be realized through various factors and quality of the products is one of the main ones. When the product’ quality is in line with or higher than expectations of buyers, retailers will no longer need to be worried about their inventories but when the quality is lower than expected, the products accumulate in the warehouses and cost a fortune for them. To avoid the situation they should always monitor the market and be aware of the counterpart products that are provided by their customers.
Incorrect forecasting about market: retailers must always keep an eye on the market trends and analyse customers’ behaviour to predict their needs. Failing to do so, retailers could end up with obsolete inventory that is not even at the bottom of the list of demands by customers.
Out of season products: Items including clothing, accessories and shoes have to get out of warehouses before the end of each season and wholesalers usually have their own strategies to free the space of stockrooms for the next season’s items. Not implementing an effective strategy would lead to warehouses full of unsaleable inventory.
Poor communication with customers: The one and only way to learn about customers’ needs is communication. Poor communication with customers results in the stockpiling of inventory that customers have no interest in
Obsolete products: Due to exponential technological progress, some products become obsolete in a blink of an eye and if the retailers do not get updated about recent development in these areas they end up with warehouses full of outdated inventory which is exorbitant.
Lack of an inventory management system: Thanks to the technology there are lots of inventory management systems that help businesses and retailers to keep track of the inventory and prevent possible errors in the resourcing process.
As stated earlier, retailers incur considerable costs due to the accumulation of dead stock in their warehouses. First, piles of unsaleable items in the stockroom take up the space that could otherwise be occupied by popular products and missing this opportunity has its own costs. Second, holding expenses related to keeping unsalable items in the warehouses are considerable. Costs including rental of stockrooms or warehouses, insurance of goods, utility bills and providing security for the warehouse and inventory have to be covered by retailers. To manage warehouses which are full of dead stocks retailers need to employ staff and pay them and depending on the scale of the warehouses and the amount of dead stock which is piled inside them their associated expenses may increase.
There is an old saying that goes “prevention is better than cure” which in this context means that retailers better to prevent stockpiling inventory in the warehouses than searching for solutions to get rid of them. The following measures can help you to overcome the issue of dead stocks:
Inventory Management Automation
Using automation platforms such as Oderhive, inFlow, Lightspeed Retail, Upserve, Megaventory, etc. wholesalers will be able to generate intelligent reports about their inventory and keep track of unsold and finished goods. The platforms allow them to forecast trends and estimate their customers’ needs precisely. Automating purchase order and reorder points and estimation of required quantity and optimal date dates for purchasing are among other capabilities of the aforementioned systems. In this way businesses can make data driven decisions about their inventory and control it proactively.
Carefully Source the Products
Retailers must take into account important precautions before procurement and only after they are reassured about customers’ demands should they take steps for procurement and stockpiling items in their warehouses. It is also recommended that companies keep in touch with their customers to become aware of their demands and accordingly source the required items.
Define worst case scenarios
Sometimes, despite having automated inventory management systems and analysing customers' demands before sourcing stock, things will not go as planned and wholesalers are faced with piles of dead stock in their warehouses. As such, it is recommended that they define worst case scenarios to get rid of obsolete inventory. They can either return the slow selling merchandise, or take other useful measures.
Based on what was said before, despite implementing strategies to avoid dead stock and carefully sourcing the inventory, accumulating dead stock to some extent is inevitable and usually a certain amount of inventory remains unsalable. Following you can find best strategies for managing dead stock:
Sell them in bundles
Retailers can sell dead stock together with best selling products as bundles and offer them with a price which is lower than the sum of price for both items. In this way they can get rid of slow selling items and at the same time customers can have the popular item that they need together with an item at a lower price.
Retailers can mitigate their losses in ways other than selling them. Of course this option is not related to money making and businesses choose to donate their dead stock for good will. Businesses can request tax write-offs for the donated goods and save a lot of money.
Inventory clearance sale
Retailers can make special offers to sell their dead stock. It is advised that they specify a limited time frame and even offer free delivery or other bonuses for them to prevent heavier damages and to reassure that the items will not get back to their warehouses, retailers can remind the customers that return or exchange is not allowed.
Article By: MaryamSadat Mousavi