Dead stock, isn't that one of those Marvel superheroes?
Close, but no. Dead stock is an issue that many an inventory control manager finds themself faced with. It takes up warehouse space, loses value, and interferes with a business's ability to make money.
So, what exactly is dead stock and how do you deal with it?
We'll give you those answers and more to help you with the inventory management process and get back to growing your business.
What Is Dead Stock?
Dead stock is a form of surplus inventory that is unlikely to be sold in the near future. It is a drain on resources and actively prevents a business's ability to increase its profits. Unfortunately, it can be found in the warehouses of many businesses and takes up valuable warehouse space.
Dead Stock Definition
Dead stock is any unsold inventory that sits in storage for a long period of time. These goods are not expected to be sold in the near future. They were not ordered with the intention of storing them for a long time, as in the case of safety stock. This makes dead stock a drain on warehouse resources.
Dead stock continues to depreciate in value and may eventually expire or become obsolete and have to be written off as a loss.
Example of Dead Stock
Dead stock is not the same as inventory with a long life cycle. It was never intended to sit for as long as it has. It is likely the result of overbuying, inaccurate demand forecasting, or poor sales strategies.
To help clear things up, here's a brief example of dead stock:
Let's say you're a food wholesaler and you ordered 200 sacks of potatoes for resale. Your inventory forecasting shows that you can expect to sell them within two months.
Unfortunately, demand for those potatoes unexpectedly dropped and you can only sell 50 sacks in those two months. Due to a new health food trend, revised forecasting shows that sweet potatoes have stolen most demand for potatoes. As such, you can't feasibly sell the remaining 150 any time soon.
This remaining balance is now considered dead stock. These potatoes are now a drain on your warehouse and may even go bad before you can offload them.
Dead Stock Inventory Management
Dead stock inventory control consists of selling what product you can and finding ways to minimize the expenses accrued by dead stock. An inventory manager needs to determine the causes of their dead stock.
One thing that can lead to dead stock is poorly managed lead time and reorder points (avoid this using our reorder point formula). This can cause customers to cancel their orders and stock that was expected to be sold left sitting in the warehouse.
Inventory tracking is also a vital part of managing and eliminating issues with dead stock. It will also allow you to determine the correct amount of goods to order in the future and recognize sales trends and inventory cycle count.
How to Account for Dead Stock in Balance Sheet
An unfortunate effect of dead stock is that it will stay in the debit column of the balance sheet. This is unlike regular inventory which turns over regularly and will leave the debit column when sold.
Dead stock must be accounted in physical counts of inventory each month it sits until it is gone. That is, until it is finally offloaded or written off as a loss. This lowers your profitability each month and highlights the importance of eliminating dead stock.
Dead Stock Analysis
Dead stock analysis is part of conducting an inventory audit that determines the amount of inefficient stock in storage. It is a common part of most inventory management software. It is determined by comparing the expected and average life cycles of products against their actual time in inventory. If a good has passed the expected time for turnover, it risks becoming dead stock.
How to Get Rid of Dead Stock
Getting rid of dead stock isn't easy. If it was it wouldn't have become dead in the first place.
Here are a few ways you can move that product.
- Start kitting. Kitting is a great option for products that aren't selling. By bundling them with similar goods or products that with more demand, you can offload them more easily under a single SKU number. In particular, you can work with a subscription box company and get your goods bundled with similar products from other companies.
- Offer discounts. The most common way to sell unwanted goods is to lower their price. Create a sense of urgency with a limited-time sale and push as much of the stock as you can.
- Transfer the goods to another store. If you own multiple locations, moving them to another location is a viable option. Demand can vary greatly by location and you may be able to sell more stock in another area.
- See if your supplier will take them back. Some suppliers will include in their contract that they'll take inventory back if they don't sell by a certain point. You may have that deal already and not know it or your supplier might be willing to sign a new contract.
- Make new connections. If you’re a wholesaler, building relationships and finding new customers is a great way to sell dead stock. The BlueCart Digital Storefront is a perfect way to do that.
Dead Stock Report
A dead stock report is an inventory count of all goods in your inventory that are considered dead stock. This report can be created by taking a full inventory and comparing products' time in inventory against expected life cycle. If you use software that provides a perpetual inventory count, there is likely the ability to export a dead stock report.
This report can give you insight into what products are in danger of expiring and allocate resources to sell or offload them.
Dead stock doesn't have to stay dead. There are many ways you can get it out of your inventory and avoid writing it off. Just try some of the options we listed above and get back to focusing on your most valuable inventory. It's an important part of our inventory control guide.
Going forward you should try to avoid running into issues with dead stock entirely. Calculating your economic order quantity can help. Another viable option is to adopt a just in time inventory model so you never have too many products on hand.