In terms of inventory management, knowing precisely what to order is an array of data-driven analysis, experience in business and insight from customers. Even the most insightful operations can overorder or underproduce at times and leave the company with a surplus of inventory that cannot be sold, or otherwise referred to as dead stocks.
Dead stock can affect the cash flow and revenue and take up valuable storage space, and make a business less viable. Here’s how to minimize the possibility of collecting dead stock, and how to manage or reuse dead inventory already stored at your facility.
What Is Dead Stock?
Dead stock, also known as dead inventory, and outdated inventory is a term used to describe items that don’t have a chance to be sold. Dead inventory can adversely impact the bottom line of any business.
Do not confuse “dead stock” with “deadstock,” a term used by some consumers, like fans of sneaker shoes. Deadstock typically refers to lines that have been discontinued of shoes or items from the past, such as clothing and fabrics, that are no longer in the marketplace, but retain the original tags. As opposed to dead stock items are usually sold for a premium.
Key Takeaways
- Dead stock is an expensive expense that decreases the profitability of a business by slowing sales by increasing carrying costs, and occupying space in warehouses that is otherwise used for storage.
- Businesses may accumulate dead inventory due to a variety of reasons, such as insufficient inventory management, a decline in customer demand, and shifting economic conditions.
- Strategies to manage or reuse the stock that is no longer being sold include discount bundling, discounting, and other sales channels.
- Software to manage inventory helps businesses avoid dead stock by ensuring that the inventory levels with the demand.
8 Ways to Effectively Manage or Repurpose Dead Stock
Dead stocks are a frequent issue that most companies experience at least once in a while. There are, however, ways to limit losses. Here are a few of them:
1. Offer a gift with purchase
It is possible to get rid of stock that is no longer needed by offering it as a gift when your customers purchase another product, but this strategy will not necessarily help your business’s performance, other than by clearing space to store other items. It could, however, encourage customers to purchase since they’ll get greater value from the purchase. Studies have also demonstrated that when they receive an offer of a gift with a purchase, consumers are more likely to return to the same retailer in the future.
2. Bundle products
You may be in a position to sell off your dead inventory by bundling it up with a related product and offering the bundle at an amount that is less than the price customers would be willing to pay for the items independently. This method is also referred to by the name of “kitting.” Like all strategies to dispose of dead inventory, the profit margins of your business are likely to be impacted. To make as much profit as you can, it’s recommended to bundle dead inventory with popular items that will likely be sold anyway.
Avoid mismatching items Customers who feel they’re being pressured to buy things they don’t need or require then they’re less likely to see worth when they purchase the set.
3. Partnerships
When you’ve got an existing positive relationship with another business Consider ways that you could be able to move stock that is dead by working together to create the product in a bundle with a co-branded brand or offering the stock as a gift when you purchase from the company you collaborated with.
A different option would be to sponsor an auction or factory sale in which all the dead stock is sold at a discounted cost for a short period only.
4. Return the item to the supplier
You may be permitted to return surplus raw materials and non-perishable retail items to the suppliers. If a vendor doesn’t provide an entire refund, they may buy the dead inventory at a fraction of the price originally paid which allows you to recoup some losses, or may offer you an amount of credit. If the seller gives you a credit ensure that you’re eager to buy from the seller in the future.
Also read: How to Write an Awesome Return Policy for Your eCommerce Store
5. Give discounts, or have a clearance sale
Discounts and clearance sales could be the easiest method to deal with stock that is no longer in use. Even if you do not get the return you wanted, selling off the stock that is no longer in use at a discounted price will help keep cash flowing while also freeing space. Make sure to offer significant savings to customers, and they could be more enticed to purchase. Clearance sales can be particularly successful if your inventory is filled with seasonalbut still valuablethings.
6. Take advantage of wholesale sellers
If you are unable to sell the stock you have to clients, you might be capable of selling it to a different company that will then resell it at a discount price in bulk. There are a variety of options available:
- Wholesalers purchase products from manufacturers at a cheaper price, and then offer the items to retailers at more. The retailers then offer the products to customers.
- Wholesalers who sell closeouts concentrate on reselling products that are in their last stages of life.
- Liquidation companies can resell surplus stocks. They typically buy dead stock for an affordable price, which means it’s possible you’ll not make a profit but at the very least you’ll have shelves for better-performing products.
7. Try another selling channel
When your traditional sales strategies aren’t working think about selling your product on an online marketplace like eBay. These types of sites typically have a following, and you could be able to reach potential customers who have never known about your company or even seen your product. It’s possible to work hard to manage your items in online marketplaces, however, the search capabilities of these websites will allow customers to locate your products.
It is possible that you will need to pay to sell on marketplaces online by way of cut-offs or month-long charges, so it’s recommended to carefully study the conditions and terms in advance.
8. Donate dead stock
Although giving away old stock for a worthy cause will not help you recover lost profits, you could be eligible for tax deductions and create a good impression on your customers. A growing number of consumersespecially younger customers -are aware of corporate social responsibility when they make purchases. One study revealed that 81 percent of young people are expecting companies to “make a public commitment to good corporate citizenship.”
5 Ways to Avoid Dead Stock
It’s crucial to be aware of how to dispose of dead stock in the event of need but it’s also important to not have dead stocks in the first place. A better inventory management system, quality control, and a thorough study of customer requirements will help.
Here are a few specific steps businesses can adopt:
1. Inventory management software
Companies that perform inventory control and management by hand usually have only little visibility into the inventory levels because they rely on physical inventory inspections and can’t continuously update information.
2. Test products before mass production
Making small batches of items and observing the reaction of customers prior to taking the plunge into larger-scale production could cost more in the beginning, but the benefit is that you can reduce the possibility of producing a lot of units that do not sell. While you’re at it, you can collect feedback from customers, and maybe find improvements you can implement to enhance the product and increase the chances of its success.
Also read: What is eCommerce Distribution? Process, Strategy, and Solutions
3. Ensure high-quality products
Quality issues are the most common reason for dead stocks. If your customers aren’t satisfied with your product and stop purchasing them, they’ll leave. Before mass production or placing orders in bulk, you must establish strict quality assurance procedures to make sure that there aren’t any flaws with the materials that you utilize and the products you deliver to your customers. Each component must be of sufficient quality to meet the needs of customers.
4. Monitor slow-moving products
Keep an eye out for slow-moving SKUs they could be deemed obsolete shortly. For this, you’ll require sophisticated inventory management software that can tell you what products are sitting in the back of. When you spot SKUs with lagging numbers Be proactive in getting rid of the slow-moving inventory before it causes further damage to the cash flow of your business. Try to pinpoint the root cause and suggest a solution for the future. It is possible to provide discounts or promotions or even phase out the product or modify the product.
5. Survey customer needs
If you know what your customers are looking for then you’ll be in a better position to prevent dead stock at all. Send out surveys to customers and conduct market research before deciding to invest in any new product. Continue to collect feedback from customers after you begin selling the product and the results could provide you with information about problems that could cause potential dead stock problems in the future like changing demands or a decrease in quality.
Final Thoughts
Dead stock may persist for the duration of your company’s life, however, the implementation of effective strategies to manage inventory can drastically reduce the impact. Utilize tools like the REORDER POINT, EOQ, and the ratio of inventory turnover, together by proactive forecasting of demand and quality controls to keep dead stock at the minimal.
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