Inventory will be sold. Unsold inventory can build up over time, leading to so-called “dead stock”. Dead stock accumulation is the money left on the table and can have a significant impact on retailers’ profits.
It is essential to offload dead stock to keep a healthy profit margin. However, e-commerce businesses are often challenged with the optimization of inventory as their businesses are growing. This is often due to a lack of inventory management systems and processes that accumulate dead stock over time.
These articles will help you know dead stock reasons, how to get rid of it, how to maintain gains, and most essentially, how to prevent it from happening with the help of proper inventory management.
Dead Stock Definition
Dead stock is an e-commerce inventory that is typically stored in a warehouse and may not be available for sale in the future due to expiration, obsolescence, poor quality, or out-of-season. Dead stock refers only to inventory that has never been sold and does not include returns.
Dead Stock Reasons
To avoid dead stock, it’s important to understand what’s piled up in the first place. By understanding what contributes to the buildup of dead stock, you will be better prepared to eliminate the buildup of dead stock and prevent them from accumulating in the future. Here are some of the most common reasons for dead stock:
- Excessive Ordering
Ordering over inventory without knowing how much to sell in a particular time frame is the easiest way to accumulate dead inventory and increase inventory costs.
Understanding the amount of inventory needed to process future orders can be difficult. It’s good to have excess inventory, but by taking the time to implement an inventory management system and track key sales indicators such as inventory turnover, you can replenish inventory, buy the amount of inventory, and when to buy. You can make better decisions about it.
Another way retailers can avoid overordering is to buy less inventory more often. For example, you can reduce the risk of dead stock buildup by purchasing inventory to meet your monthly needs rather than your one-year needs.
- Not Precise Demand Forecasting
If the correct data is not tracked, it can lead to misjudgment of future demand. This gives the e-commerce business false information about which products are in demand and how quickly they are sold. By getting accurate historical order data, you can more accurately predict demand instead of buying slow-moving products that consume storage space and profits. Accurate forecasting allows you to make informed decisions about the amount of inventory you want to buy to fill future orders.
- Bad Marketing of Sales Efforts
If you’re selling a product that’s in high demand, but your inventory isn’t running out as quickly as you think, it’s likely that you’re lacking in marketing and sales efforts. This is a big opportunity cost. Inadequate marketing and communication with sales teams regarding product sales, non-target product messaging, inadequate web experiences, and poor customer awareness can prevent high-quality, high-demand products from being sold.
- Inadequacy of Quality Control = Defective Items
Even if it is a new stock, it does not mean that it is of high quality. To ensure proper quality control, it is important to build good relationships with trusted manufacturers or suppliers. This ensures that you have the right quality control standards in place before you buy additional inventory.
Dead stock = dead load for your e-commerce business
Just sitting in a storage rack, dead stock eats up your company’s bottom line and undermines it. Here are three subtle reasons why dead stock is spending money on businesses.
- Unsold Items
Dead stock was initially inventory purchased with the intent to sell it. So if a business is not selling products it`s already invested in, it`s failing to make a profit on that investment — or, at the very least, failing to recoup the cost.
Dead stock was originally purchased for sale. Therefore, if a company does not sell a product that it has already invested in, it cannot make a profit from that investment. Or at least you can’t recover the cost.
- More Costly Inventory Storage Fees
Inventory costs come in many forms, but revenue is always the same. The more stock you have, the higher the cost of storage. Dead stock occupies valuable space to accommodate more popular new products. It is always important to perform inventory checks and quickly remove unsold or unlikely inventory.
- Reduced Profit Margins
Dead stock is liquidated with profits and can have a significant impact if left unattended long enough. Increased time and effort required to sell inventory, sunk cost of inventory purchases from manufacturers, and increased inventory costs affect a company’s profit margin.
How to Get Rid of Dead Stock
Dumping dead stock may seem difficult, but there are many practical and lucrative ways to get rid of dead stock. By adopting the following best practices, you can rejuvenate the value of your inventory and create room for new inventory.
- Have the Dead Products on Sale
Dead Stock offers a unique opportunity to target bargain buyers. Make a clearance sale or create a discount area in the store to offer dead goods at a low price. Alternatively, you can try the best-selling and deadstock product bundles (and you can also offer free shipping).
- Provide Them As a Free Item/Gift
Offering Dead Stock as a free gift will delight customers and enhance the unpacking experience. This is a great way to increase customer satisfaction and motivate you to buy from your business in the future. Gestures mean everything, and if you can offload dead stock in the process, it’s a win-win.
- Have Them Donated
If everything else fails, your business can donate unsold inventory and use it as a depreciation of the inventory. While not offering the immediate rewards offered by other strategies, charitable donations are a great way to give back to the community, and customers often appreciate the humanitarian efforts of the company.
How to Prevent Dead Stock
The right way to deal with dead stock is to prevent it from accumulating in the first place. Here are some best practices to prevent the buildup of dead stock:
- Correct Forecasting of Demand
Forecasting demand helps you forecast future sales. This allows you to make better decisions about how much inventory to buy, future inventory needs, and flash cell timing, and to develop effective pricing strategies.
- Put Reorder Points and Safety Stock
Reorder quantity refers to the total number of product units requested from the manufacturer or supplier for a replenishment order. The exact amount should not be high enough to hold a lot of capital in storage and risk out of stock. However, you also need to make sure that you have sufficient safety stock and do not risk running out of stock before you get the next batch of stock.
- Inventory Management Software Enhancement
Choosing inventory management software that is intuitive and easy to use is absolutely important. Chicago Shipper’s order fulfillment solution provides integrated inventory management tools, data, and reports to provide insights into demand forecasting, order management, and more to help you make better inventory management decisions.
Finding a way to quickly remove dead stock and avoid it is important to the long-term viability of your business. Aggression is important to avoid dead stock. Taking the time to set up your inventory management process can help you reduce business costs, meet customer demand, and streamline your supply chain.
Chicago Shipper offers a robust international fulfillment network combined with the latest fulfillment technology, making it easy to track inventory levels and orders from a single dashboard.