Dead inventory meaning8/8/2023 ![]() So, assuming you don’t want to get overrun by dead stock, let’s begin. Here you’ll learn the dead stock definition, how to exorcize it, and get more control over your inventory. You don’t need this zombie-esque product munching away behind your back, and that’s where this guide comes into play. However, like the unwed specter, sometimes an item doesn’t sell and is left abandoned on an unlit shelf in your warehouse.Īnd there, it survives by eating up space and devouring your company’s revenue. Remember those horror stories you heard when you were growing up?Ī young maiden haunts and terrorizes those who dare venture to the church after she was abandoned at the altar on her wedding day. Today, we’re looking at the zombie equivalent of the manufacturing world - dead stock. ![]() Secondly, even though the quote originally referred to a less-than-convenient zombie outbreak, the sentiment still applies to inventory management. Romero fans who might be offended by the repurposing and rephrasing of that quote. Getting an accurate, realistic measurement of what inventory truly costs is a smart first step to saving money, increasing cash-flow, improving performance (inventory turns and customer service) and increasing your competitiveness.“When there is no more room in inventory, the stock will flood the shop. When all additional costs are taken into account, the total cost of holding inventory can represent a shocking 25-30 percent more than the inventory’s unit cost value. In addition, having your cash tied-up in inventory-related expenses has an opportunity cost, which can translate to as much as 15 percent or more. So, What is the Real Cost of Dead Inventory? That’s why it is important to keep inventory turning over, and why not carrying excessive dead inventory is crucial. So the cost is the missed profit that could have been achieved if another faster selling item had been chosen. When outdated inventory is left on shelves for too long, you also miss opportunities for potential sales and profit on newer goods. However, this typically won’t cover the unit cost alone for the item, not to mention the full sales price with the anticipated profit margin, Certain items like perishables, or other items are scrapped completely and thrown out without recouping any money at all. ![]() In some cases, companies can return to a manufacturer incurring a restocking fee, or sell to an off-price reseller to collect some revenue. Hopefully, your staff is making up for this by optimizing systems and procedures, such as leveraging multi location activity to reduce cost of inventory. Employees paid for tactical, rather than strategic, management issues is wasteful. Paying employees to “fix” the inventory problems, as well as management time spent on solving inventory issues, is very costly. And there are expenses associated with maintaining all of this equipment. Typically, fork lifts, pallet trucks, tow motors and ladders are needed as well as racks and shelves for storage and even pallets and skids for larger parts. ![]() Warehouses incur equipment expenses to load and unload stock as well as transport materials. The longer the inventory is held and the more it is moved around, the higher the likelihood of loss due to theft, damage by accident or through improper or poor handling or storage methods. Shifting dead inventory out of a selling area or from prime warehouse real estate to the “back” of the warehouse will cost money in terms of labor needed to handle and also to keep product in a good and “saleable” condition. ![]() Warehouse personnel are paid by the hour so every minute spent handling, counting, moving, maintaining or ultimately discarding stock adds to the cost. The more dead inventory you have, the higher the handling costs. This is a cost that is often hidden or completely ignored. But when these items become dead or obsolete, they must often be sold at a huge discount or even scrapped. When sold in the expected time frame and at the expected cost, they generate profit. Discountsĭead inventory is often a result of stocking products that were either forecasted by sales or based on historical sales data. If you store excess inventory, your premiums may increase. Resellers also commonly pay insurance premiums based on the value of inventory held in stores. The longer you hold dead stock without liquidating it or clearing it out for new stuff, the more interest you accrue on the debt obligation. Companies often buy goods on account from suppliers. In resell businesses, carrying excessive inventory may lead to higher finance fees and insurance premiums. Also, typically, there’s loss to be considered from pilferage, shrinkage and obsolescence. In addition to the significant financial and opportunity costs of capital tied-up in inventory, insurance on the inventory is a substantial additional expense. ![]()
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