Dead stock is – almost literally – a dead weight on your business. It’s costly to store and dispose of, hits your cash flow, and limits the space you have available for stock that can actually be sold. It’s also a waste of resources (the labour, materials and energy that went into producing it), and is detrimental to the environment.
During the Covid-19 pandemic, dead stock reached a peak as demand for some products, such as clothing, dropped almost overnight. Ongoing supply chain uncertainty, including materials shortages, meant that many manufacturers and distributors adopted a “just-in-case” approach, allowing stock to pile up rather than taking the leaner “just-in-time” option.
Fast forward to today and while there is always some supply chain uncertainty, the risk of holding onto excess stock is likely to be more damaging to your business because of how quickly it becomes worthless. Some sectors such as fashion or FMCG (which includes perishable food/drink products) are particularly vulnerable because the shelf life of products is so short.
So what stops businesses getting on top of dead stock? The simple answer is they often don’t realise it’s there, just as you don’t always know what’s taking up space in your attic. Stock that goes unnoticed for weeks, or even months, is a hidden cost that undermines efficiencies you could be making elsewhere. It can also be difficult to admit that inaccurate forecasting or a lack of sales contributed to the overstock.
Most companies carry at least some dead stock, and levels often fluctuate throughout the year. In this article, we’ll look at what it is and how you can prevent it.
Key takeaways
- Dead stock represents items in your warehouse that cannot be sold because there is no demand and/or it’s perishable and out-of-date. SLOB (slow-moving or obsolete) stock includes dead (obsolete) stock.
- Maintaining the right stock levels is a complex task which can be derailed by unexpected events – whether it be a viral social media trend or geopolitical tensions impacting supply chains.
- There are direct and hidden costs associated with dead stock, and it can be caused by inaccurate/fragmented data, high returns volumes, and over-ordering.
- Business software including ERP (enterprise resource planning) is key to maintaining a lean inventory and anticipating demand.
Defining dead stock
Dead stock is a type of SLOB (slow-moving or obsolete) stock – but while slow-moving stock could still be sold, dead or obsolete stock cannot. This could be because it’s out-of-date or has no value due to lack of demand (think World Cup merchandise after the event is over).
In theory, unsold stock is an asset on your balance sheet since it could contribute to the value of your business. But in reality, it’s a liability or debt since the cash is tied up in the products, so you can’t use it elsewhere – whether that’s for paying staff, suppliers and other overheads, or investing in growth strategies.
Why does dead stock happen?
Managing supply and demand, especially at peak seasons like Christmas, is always a careful balancing act for retailers and distributors.
Even if you have data from the same period last year, unexpected events – like a heatwave, a viral social media trend, or geopolitical events impacting supply chains – can upend your forecasting. Trend-led industries like fashion and homewares are particularly susceptible to fluctuations in demand, while food/drink businesses may find themselves with more surplus dead stock because it’s perishable.
There are always going to be factors outside your control, but internal inefficiencies make the problem worse. Manually forecasting demand using historic data, for instance, makes it difficult to respond to current changes and trends, so you’re more likely to end up with dead stock. And when you’re also tracking it manually, it can pile up without you being fully aware of what you have.
Here are just some of the common factors behind dead stock:
- Inaccurate/outdated data: Storing data on multiple spreadsheets means you don’t get a complete picture of the stock you have, especially if it’s not up-to-date. As a result, teams might order new stock without being aware of what’s already available, or you could be needlessly paying for warehouse space rather than disposing of the dead stock quickly.
- Too many returns: Products may be defective or not as described, leading to higher return rates, and at least some of that stock cannot be resold.
- Over-ordering: It’s easy to get caught up in a new trend – and while you need to make the most of the sales opportunities it brings, real demand may be short-lived.
The costs of dead stock
Lack of oversight and competing operational demands are the two main reasons why dead stock accumulates. Sometimes, teams simply aren’t aware of what is sitting on the racks, especially if they’re consumed with fulfilling orders day-to-day. But dead stock results in both direct and hidden costs:
- Storage: Warehousing space is in short supply – so much so that research suggests it has cost the UK economy 140,000 jobs and £9.7bn in economic output since 2010. Dead stock contributes to this shortage, both in terms of direct storage costs and reducing supply.
- Missed sales/growth opportunity: Every unsellable item in your warehouse takes space away from sellable ones, so you miss out on the revenue. Scaling up your business also becomes difficult because you don’t have enough cash to invest in more products, staffing or space.
Getting your stock levels just right
Inventory management or ERP (enterprise resource planning) software simplifies and improves stock control, helping businesses become more forward-looking and responsive to change.
Real-time visibility of your inventory shows you whether stock is available, SLOB or dead, so you can either proactively sell it, or at least reduce your storage costs by disposing of it responsibly.
The level of detail your ERP offers makes it easy to audit stock regularly and make smarter procurement decisions, preventing over- or understocking. In short, it helps you to incorporate up-to-the-minute transaction data rather than just historic trends (or worse, gut feeling).
An ERP that includes a Customer Relationship Management (CRM) is even more powerful in reducing dead stock because you can actively upsell/cross-sell to current customers based on their previous transactions, or revive dormant ones.
Conclusion
Multiple sales channels, fluctuating demand, high customer expectations, and tight margins make stock management a complex task – which is why an ERP is essential in a modern warehousing or distribution environment.
With highly-accurate stock management and forecasting capabilities, you can maintain a lean inventory without the risk of stockouts. You’ll pinpoint sales opportunities quicker, which could eliminate dead stock entirely. And if you do end up with it, it won’t stay hidden (and cost you money) for long.
Book your free demo to find out how Khaos Control could help you tackle your inventory management challenges and grow your business.