Updated April 14, 2024
What do last season’s fashionable shoes, a laptop model with a defective battery, and a side table made famous on Tik Tok last year have in common?
They all are products that are past their prime and cannot be sold any longer.
Why should brands care about dead stock and how do they manage when their popular products become dead stock?
What Is Dead Stock & Why Does It Matter?
Dead stock (also known as dead inventory) refers to each item that a business has in its inventory but cannot sell. These products can tie up capital, take up valuable storage space or warehouse space, and may eventually become obsolete stock. Dead stock matters because it can directly impact a business’s bottom line, cash flow, profit margin and operational efficiency. Dealing with a dead stock of goods requires a proactive approach and a thorough understanding of how to manage and avoid it.
The Impact of Dead Stock on Business Operations
Dead stock can have some serious consequences on business operations. It can result in reduced cash flow, decreased profitability, lower inventory turnover, higher carrying costs, and reduced warehouse space availability. Each instance will most likely cause problems with inventory levels as the total amount of dead stock items increases.
Real-World Examples of Dead Stock
Let’s explore some real-world examples of dead stock. A fashion retailer that overstocks on a particular style of clothing that won’t sell anymore, a toy store that stocks up on a particular toy before realizing that it’s defective, or a bookstore chain that overestimates the sales of a particular book title.
How to Calculate Dead Stock
Knowing how to calculate dead stock is an essential component of inventory management. There are various ways to calculate dead stock, including the dead stock value method, the dead stock sunk cost method, and other techniques. The data needed to calculate this can typically be obtained from your inventory management system or software.
Dead Stock Value Method
The Dead Stock Value Method involves determining the total value of dead stock inventory in a warehouse. To calculate, subtract the inventory that’s still sellable from the total inventory. The difference provides the value of dead stock.
Dead Stock Sunk Cost Method
The Dead Stock Sunk Cost Method is a more complex calculation that incorporates the total amount spent on dead stock inventory, including purchase price, shipping, handling, and storage costs. By factoring in total sunk costs, businesses can determine the actual financial impact of dead stock.
Other Ways to Calculate Dead Stock
Other ways to calculate dead stock include the percentage of dead stock and the average time on the shelf. These calculations provide different insights into dead stock and offer additional metrics to monitor inventory performance.
The Causes of Dead Stock
Dead stock can have multiple causes, including ordering inconsistencies, poor sales, inaccurate forecasting, and market trends, and defective products and quality control measures, among others.
Ordering Inconsistencies and Overstocking
Sometimes, companies overestimate the demand for a particular product, leading to excess inventory, also known as an inventory glut. Ordering too much or too little inventory can lead to dead stock. Poor inventory forecasting and inaccurate data can result in overstocking on items that do not sell or too low inventory levels leading to stockouts. This is one of the many reasons why inventory accuracy is crucial for every business.
Poor Sales and Market Trends
Demand for products can change quickly, for a variety of reasons. For example, new products can be introduced that compete with a brand’s products, or trends can change. If demand for a product drops, brands may end up with dead stock. Retailers who fail to keep up with market trends or misjudge consumer demand run the risk of overstocking or understocking.
Defective Products and Quality Control
Dead stock can also result from manufacturing defects or poor quality control measures. If products do not meet the required quality standards or have faults, they may be unsellable or subject to returns.
Obsolete Inventory vs Dead Stock
Obsolete inventory and dead stock are often used interchangeably, but they are not the same thing.
Defining Obsolete Inventory
Obsolete inventory is inventory that has become outdated, unnecessary, or unusable. It can also be caused by advances in technology or changes in consumer preferences.
Key Differences and Similarities
Dead stock, on the other hand, is inventory that cannot be sold, regardless of its usefulness or relevance. Obsolete inventory can become dead stock, but not all dead stock is obsolete inventory. Both dead stock and obsolete inventory can have negative impacts on businesses, but effectively managing them can save businesses time, space, and money.
Strategies to Manage and Avoid Dead Stock
Dead stock can often be a cause of poor inventory management. Effectively managing and avoiding dead stock requires proactive strategies and inventory management techniques, including demand forecasting, offering discounts, regular inventory audits and conducting quality checks.
Effective Order Management Techniques
An approach to inventory management that involves real-time monitoring and adjustments can also help avoid excess stock. Effective order management techniques such as demand forecasting, analyzing sales data, and monitoring inventory levels can help brands avoid dead stock. Accurate data and inventory forecasting can guide inventory management decisions and help avoid overstocking or understocking.
Additionally, using technology and analytics to track sales performance, identifying slow moving inventory goods, and making timely decisions can also prevent stock from becoming dead.
Sales Strategies for Dead Stock Reduction
Sales strategies, such as offering discounts, promotions, or bundling, can help reduce dead stock items. To implement this strategy effectively, businesses should understand consumer demand and offer promotions on specific products that are not selling as expected. Businesses can also offer value to customers by combining dead stock items with popular products, incentivizing purchases, and reducing the risk of stagnant and unsold inventory. The most common tactic is to hold a clearance sale to lower dead stock inventory count.
Quality Standards and Checks to Prevent Dead Stock
Implementing strict quality standards and conducting quality checks on incoming inventory can minimize the risk of dead stock resulting from product defects or quality control issues. By taking a proactive approach to quality control, businesses can avoid unsellable inventory.
The Role of Technology in Dead Stock Management
Using technology to manage dead stock can help brands optimize inventory management. Inventory management software can track inventory and stock levels in real-time and provide data-driven insights into inventory performance. Real-time inventory visibility via tracking can aid in identifying dead stock early and help implement strategies to prevent and reduce it.
Inventory Management Software and Dead Stock Analysis
Inventory management software analyzes trends, automates orders, and monitors inventory levels. By using inventory management software to conduct dead stock analysis, brands can uncover valuable insights and track inventory levels in real-time.
The Power of Real-time Inventory Tracking
Another way technology plays a role in inventory control is by tracking stock levels . Real-time inventory tracking allows brands to monitor inventory levels and predict future inventory needs to avoid excess stock. By using real-time inventory tracking, businesses can get ahead of trends—seasonal and other—and avoid overstocking, minimize the risk of stockouts, and reduce dead stock.
How Flowspace Can Help You Manage and Avoid Dead Stock
Effectively managing and avoiding dead stock is crucial for ecommerce brands. With Flowspace’s inventory management solutions, brands can automate inventory management tasks, analyze inventory performance, and avoid dead stock proactively.
Flowspace offers a seamless order fulfillment platform that effortlessly integrates with online retailers and various sales channels. This enables brands to view stock quantities, manage products, and generate sales order summaries with a simple click.
In addition, Flowspace presents an in-depth product inventory management system, granting brands full transparency over their stock. Brands have the advantage of monitoring their inventory in real-time, receiving notifications when stock levels dip, and obtaining valuable insights for future product forecasting. This ensures brands consistently maintain the ideal stock quantities, steering clear of stock shortages, and reducing unnecessary inventory expenses.
Reach out now to discover how a fulfillment company such as Flowspace can assist you in preventing or managing overstock and refining your inventory practices!
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