Dead stock

From CEOpedia | Management online

Dead stock is inventory that is no longer selling and is taking up valuable space in a company's warehouse. This can happen for a variety of reasons, such as a change in consumer trends, over-ordering, or simply not enough demand for a product.

Inventory, or stock, is a crucial part of any company, especially businesses that rely on physical products. Very often, for such types of businesses, what happens is that inventory starts to pile up and becomes what's known as dead stock.

Negative influence of dead stock on a business

There are numerous reasons on why having piled up unused goods is harmful for effective business operation:

  • It ties up company’s capital.

When you have inventory that's not selling, it's money that's just sitting there and not being used to grow the business. That's money that could be used to invest in new products, hire new staff, or expand your business in other ways. The dead stock, that once was an asset - turns into a liability if never used.

  • It prevents from selling new products.

If the shelves are full of dead stock, there's no room for new products that might actually sell. This means a business is missing out on potential sales and revenue

  • It takes up valuable space.

Dead stock takes up valuable space in a store or warehouse, which could be used for more profitable items. This can lead to storage and transportation problems, and make existing processes disorganized.

  • It can be a safety hazard.

If a business has dead stock taking up space in a warehouse, it can create a safety hazard. Surely, it depends on a type of dead stock and the amount of it, but in many cases it can make it difficult to move around the warehouse, create unexpected errors in operations and even block fire exits.

All the resources that went into creating the dead stock (e.g. materials, labor, etc.) are wasted when it doesn't sell. This is a huge waste of funds and resources that could have been used elsewhere (Max Muller, 2019).

Ways to eliminate existing dead stock

The question of what to do with dead stock is a difficult one for many businesses. Dead stock can be a significant financial burden, tying up valuable resources and preventing businesses from being able to invest in new inventory.

There are a number of options available for businesses when it comes to disposing of dead stock, and the best option will vary depending on the type and quantity of inventory, as well as the financial resources of the business.

  • One option for disposing of dead stock is to sell it at a discount. This can be done through online marketplaces, physical stores, or even through private sales. Discounting dead stock can be an effective way to clear it out quickly, but it also means that the business will take a loss on the inventory. For businesses that are struggling financially, this may not be a viable option.
  • Another option for businesses is to donate the inventory to charity. This is a good option for businesses that have a surplus of inventory that they are not able to sell. Donating inventory to charity can help businesses to get rid of inventory quickly and without taking a financial loss. It is important to note that businesses will need to research charities to ensure that they are reputable and will make use of the donated inventory.
  • A third option for businesses is to destroy the inventory. This is often the most expensive option, but it may be the best option for businesses that have a large amount of inventory that is not sellable. Destroying inventory can help businesses to free upspace and resources, as well as preventing the inventory from ending up in the hands of criminals.

No matter what option a business chooses for disposing of dead stock, it is important to create a plan for doing so. This plan should include a timeline for disposing of the inventory, as well as a budget for the process. Having a plan in place will help businesses to stay on track and avoid financial losses (Richards Gwynne, 2017).

While dead stock can be a nuisance for companies, it is also a fact of life in the business world. By understanding the causes and effects of dead stock, companies can be better prepared to deal with it when it occurs. Lean management approach could be used in order to minimize goods from piling up, hence prevent dead stock.

Ways to prevent dead stock with lean management model

A lean management model is a business strategy that is focused on eliminating waste. The goal of lean management is to make the most efficient use of resources, and this includes inventory. One of the ways that lean management prevents waste is by reducing the amount of inventory that a business keeps on hand (Eli Goldratt, 2012). This is done by only ordering the amount of inventory that is needed to meet customer demand. This may seem like a risky strategy, but it actually reduces the chances of inventory becoming dead stock. This is because there is less inventory to sell, so it is less likely that any of it will become unsold.

Another way that lean management prevents dead stock is by using Just-In-Time (JIT) manufacturing. JIT manufacturing is a production strategy where inventory is only produced when it is needed. This prevents inventory from sitting around and becoming outdated. JIT manufacturing is often used in conjunction with lean management, and it is an effective way to reduce the amount of inventory that a business needs to keep on hand. In order to implement this model effectively, there are few steps a business should take:

  • First, business needs to establish what the actual customer demand is. One can do this by looking at the recent sales data. Once you know how much inventory you need to keep on hand to meet customer demand, business is ready to start implementing lean management strategies.
  • One of the most important aspects of lean management is communication. Business needs to communicate with suppliers about the inventory needs. This way, they can produce the inventory that is needed exactly when it’s needed. Another good practice is to communicate with employees about lean management goals. They need to be on board with the changes that company is making, and they need to understand how lean management can benefit the business.
  • Finally, a team of managers needs to monitor the inventory levels. Lean management is all about making the most efficient use of resources, and this includes inventory. Employees, who are assigned with this task need to keep an eye on your inventory levels, and to adjust ordering quantities as needed.

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Author: Mykyta Bitkov