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How to Save Money Through Dead Stock Inventory Management

Posted: January 10, 2020 by Ly Phan

How to Save Money Through Dead Stock Inventory Management

For any warehouse and distribution center, the key priorities are the smooth movement of goods and ensuring optimum stock levels throughout the seasons. The objective is to maintain an efficient flow of products, minimizing the amount of time in storage. However, inevitably, some products will not make it out in the optimal time, due to reasons ranging from miscommunication to limited access to data. While businesses try to minimize the volume, it’s essential to have a dead stock inventory management plan in place.

 

How “Dead Stock” Occurs?

Deadstock is the term that describes inventory that has no purpose and just sitting on the shelves, taking up valuable space. It occurs through a number of reasons:

  1. Competition: In today’s fiercely competitive retail industry, customers have a greater choice in terms of products and where to get those products from. It’s critical to keep a keen eye on factors such as quality and pricing in the goal of selling the goods. Additionally, the cheapest products are not always the answer, with even next-day delivery increasingly beaten by retailers offering same-day service.
  2. Limited Access to Information: There’s a wealth of data and information out there that can help guide purchasing decisions. However, many retailers do not have full access to this valuable resource which restrains their ability to forecast demand. By taking the time to carry out research and using software to analyze past trends, you can minimize the risk of stocking too much. A good example of where analysis can help us to identify seasonal changes in demand - enabling you to order the right amount at the right time.
  3. Miscommunication: Communication between suppliers and customers is key to reducing the risk of dead stock and ensuring a smooth supply chain. From the perspective of the supplier, it needs to retain a solid understanding of the customer’s expectations in both volume and product quality. The job of the customer is to make sure the orders are accurate and achievable. The two-way process is vital, and failing to do so can potentially lead to costly dead stock.

In short, deadstock occurs when a warehouse or retail business has too much stock that they are unlikely to sell. As the above points show, it’s critical to understand the needs of the end customer through data and communication. With access to real-time information on trends and customer buying patterns, businesses will be able to estimate the optimum level of stock accurately.

However, businesses will inevitably have a certain level of leftover stock, which has failed to sell or simply sitting on the shelves. The next question is how to manage dead stock.

 

Managing Dead Stock

The cost of dead stock can cost businesses up to 11.7% of its total revenue. By taking a proactive approach, using technology like SmartTurn, companies can turn income draining dead stock into an asset for your business.

Deadstock can eat up space and break your business

Offer Bundle Deals

If you go on Amazon or any reputable online retailer, after selecting a product, you’ll see suggestions for complementary items. For example, if a shopper chooses a pair of trousers and goes to the checkout, there’s an opportunity to suggest a top that goes with those trousers, often at a reduced price. Another way of doing it is by adding a product when customers have spent $50 or $100 on other items.

These types of bundle deals can be a win-win situation for all parties. The buyer is happy because they have an extra item without paying the full amount, and the retailer has reduced their dead stock. The profit margins may take a hit, but getting the inventory off the shelves while building strong customer relationships is a reward worth paying for. 

Businesses can use robust warehouse systems such as SmartTurn to streamline those mixed order processes.

 

Clearance Sales

This is another option for retailers and distribution centers. As well as offering bundle deals, selling products at reduced prices is a powerful tool in your weaponry for dead stock. The classic end-of-season sales have long been a fixture on the retail calendar, but with smart marketing and competitive pricing, you can get ahead of your rivals. One such strategy is to have a time limit on these sales, giving a sense of urgency and enticing customers to buy. 

Again, this will have a negative impact on profit margins in the short-term, but shifting those products off the shelves will save businesses resources and open space for more profitable items. It’s also essential to have a system in place to deal with the spike in purchases and ensure 100% order fulfillment.

 

Donations

Not every warehouse has the option of going down the retail route of selling off products, and have to look at different ways to reduce dead stock. One such method is making donations.

On the face of it, this tactic may make little business sense, but making donations is a creative way of clearing space in warehouses. As well as being a good cause, companies would benefit from positive publicity, which can lead to higher customer loyalty. 

Additionally, governments often deduct taxes on donations with receipts from charitable organizations. Therefore, taking such an approach may be more financially beneficial than businesses expect. At the end of the day, if you have exhausted all other options for your dead stock, giving it to people who need it means it won’t go to waste.

 

Inventory Management Software

To tackle overstock inventory management, the most efficient approach is to have a plan in place for such scenarios. Technology can help companies accurately forecast demand, trends, and work out the optimal level of stock. In doing so, businesses can reduce the level of dead stock and the associated costs.

At SmartTurn, we offer a comprehensive inventory management software which enables our clients to manage their stock efficiently. California-based Frozen Gourmet is one such company that has benefitted from SmartTurn’s customizable platform.

Frozen Gourmet utilized the power of software to achieve inventory optimization through real-time visibility and centralized control. By placing all the data into one platform, the company is also able to analyze trends and customer behavior, which enables staff to order the right level of stock. In reducing the risk of both stockouts and overstock, the business experienced double-digit growth and five-day lead times for orders.

The purpose of inventory management software is to coordinate the movement and flow of inventory. As well as ensuring smooth operations within the business, the other aim is to sync with the broader supply chain. Bringing each of those elements into one, secure, yet accessible platform will give your business greater control and reduce the costs of dead stock.

 

Taking a Multi-Faceted Approach

Combining the power of technology with a well-drilled plan to deal with overstock, businesses can stem the drain of revenue. Given the primary causes of deadstock, which includes the lack of access to information and miscommunication, inventory management software is an excellent solution to bring those elements together.

Once your team has mastered the functions of the software, they will be able to track inventory patterns and trends. Having this invaluable information to hand, mixed with real-time visibility, businesses will be able to ensure they have the optimal level of stock. At SmartTurn, we offer a free training video for all clients to help teams fulfill their potential. 

The software should be at the heart of a multi-faceted strategy to tackle overstock. The key is to keep track of inventory levels and be proactive in preventing inventory going to waste in the first place. In the event of having dead stock, it’s critical to take a creative approach in dealing with it quickly and efficiently, turning it into a marketing tool for your business.

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