Deadstock Inventory – Meaning, Causes, Effects, & Preventing Strategies

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Deadstock inventory is the unsold items for a specific period. The items with no sales for a specific period, like those with no sales for a year, are counted as deadstock, which locked your capital, and warehouse spaces, increased operating costs, and reduced profit margins.

Preventing or minimizing deadstock increases your competitive capabilities and can boost your business’s success.

How do you calculate deadstock?

Deadstock is a term used to refer to unsold inventory or stock that has not been sold or used for a long time, and is now considered obsolete or outdated.

To calculate deadstock, you need to follow these steps:

1. Determine the time period for which you want to calculate deadstock. For example, you may want to calculate deadstock for the past year or quarter.
2. Identify all the products or items in your inventory that have not been sold during that time period. This can be done by reviewing your sales records and comparing them with your inventory records.
3. Determine the total cost of the inventory that has not been sold. This includes the cost of the products or items themselves, as well as any associated costs such as shipping, storage, and handling.
4. Divide the total cost of the unsold inventory by your total inventory value for that time period. This will give you the percentage of deadstock.

Here’s an example of how to calculate deadstock:

Let’s say you own a clothing store and you want to calculate the deadstock for the past quarter (3 months). You review your sales records and inventory records and find that the following items have not been sold during that time period:

1. 10 pairs of blue jeans with a cost of $20 each
2. 5 yellow t-shirts with a cost of $10 each
3. 8 red sweaters with a cost of $30 each

To calculate the total cost of the unsold inventory, you would multiply the quantity of each item by its cost and add the results:

1. 10 x $20 = $200 for the blue jeans
2. 5 x $10 = $50 for the yellow t-shirts
3. 8 x $30 = $240 for the red sweaters

Total cost of unsold inventory = $200 + $50 + $240 = $490

Next, you would determine your total inventory value for the quarter. Let’s say your inventory at the beginning of the quarter was worth $50,000 and you made purchases totaling $30,000 during the quarter. Your total inventory value would be:

Total inventory value = $50,000 (beginning inventory) + $30,000 (purchases) = $80,000

Finally, you would divide the total cost of the unsold inventory by your total inventory value and multiply by 100 to get the percentage of deadstock:

Deadstock percentage = ($490 / $80,000) x 100 = 0.61%

In this example, the deadstock percentage is relatively low, which is a good sign that your inventory management strategy is effective. However, if the deadstock percentage were higher, it would indicate that you need to make adjustments to your inventory management, such as discounting slow-moving products or reducing the quantity ordered for certain items.

Causes of deadstock:

There are so many reasons for deadstock. There are some common reasons and some are industry specific. Here we discuss the common reasons regardless of the industries that are the main causes of deadstock in almost all industries.

1. Overproduction: This is when a company produces too much of a product, leading to unsold inventory that eventually becomes deadstock.
2. Quality issues: If a company consistently produces low-quality products, it will eventually create a stockpile of “deadstock” – products that are unsellable and have to be disposed of. This not only wastes the resources that went into making the products in the first place but also creates environmental waste and can damage the company’s reputation. In the long run, producing consistently low-quality products is simply not sustainable.
3. Over-purchasing: Companies may purchase more goods than they actually need, resulting in a buildup of excess inventory and deadstock.
4. Poor sales: Poor sales can result in an accumulation of deadstock, which can be a challenge for businesses as it ties up capital and storage space. Companies may choose to dispose of deadstock, donate it, or sell it at a discount to clear out inventory. To prevent excessive deadstock, companies may need to adjust their production and purchasing processes to better align with consumer demand.
5. Drooping demand: There are many reasons for the drooping consumer demand. Whatever the reasons, businesses need to be prepared for the possibility of drooping customer demand. One way to do this is to focus on providing value in new and innovative ways. For example, rather than simply selling products, businesses can focus on providing experiences or services that cannot be found elsewhere.
6. Inaccurate forecasting: Inaccurate forecasting can have a significant impact on a business. It can lead to over- or under-production, missed opportunities, and wasted resources. There are a few ways to reduce the impact of inaccurate forecasting. One is to build flexibility into your plans. This means having contingency plans in place so that you can adapt if your forecast is off.
7. Inefficient logistics: Deadstock often occurs due to inefficient logistics. The planning, implementation, and management of the movement of goods, products, or services from point of origin to point of consumption is referred to as logistics. When logistics processes are not optimized, deadstock accumulates, which has a negative impact on a company’s bottom line.
8. Poor inventory management: Due to poor inventory management business fetches various problems including inaccurate demand forecasting, overproduction, slow sales, and a failure to keep track of inventory levels. When businesses do not have an effective inventory management system in place, deadstock can accumulate, posing a significant financial burden.

Effects of deadstock:

Deadstock can be a big problem for businesses, as it can tie up capital in unsold inventory. It can also be a challenge to dispose of deadstock, as it may be difficult to sell or may need to be sold at a discount.

The problem with deadstock is that it often ends up in landfill, where it releases harmful chemicals and greenhouse gases into the environment. In addition, the production of new clothing to replace deadstock creates even more pollution.

Deadstock has a number of negative impacts on a business, including:

1. Financial losses:

Deadstock represents a financial burden for businesses, as unsold inventory results in lost revenue and resources. Companies must absorb the costs of producing and storing the goods, and they do not receive any returns from their sales.

2. Wasted resources:

Deadstock results in the waste of valuable resources such as labor and materials, which can be costly and impact a company’s bottom line.

3. Storage space:

Unsold inventory takes up valuable storage space, which can be costly and limit the ability of companies to store other goods and products.

4. Market position:

Companies that are unable to sell their goods may see their market position decline, as their competitors take advantage of the opportunity to capture market share.

In order to minimize the impact of deadstock on their business, companies need to focus on improving their logistics and inventory management processes. This may include using better forecasting techniques, streamlining supply chain operations, and implementing technology to optimize inventory levels and minimize waste.

How to prevent deadstock:

Deadstock is a huge problem regardless of the industry, with billions of dollars of unsold inventory clogging up warehouses around the world. While it’s impossible to completely eliminate deadstock, there are a few things brands can do to prevent it from happening in the first place:

1. Better planning: One of the main reasons for deadstock is overproduction. Brands often produce too much of a particular style or size, in the hope that it will all sell. But this often backfires, leaving them with unsold inventory that they can’t move. To prevent this, brands need to be more strategic in their planning, and only produce what they know they can sell.
2. More accurate forecasting: In order to avoid overproduction, brands need to have a good understanding of future trends. This means forecasting demand accurately so that they can produce the right quantities of the right products.
3. Improve inventory management: Another cause of deadstock is poor inventory management. Use an inventory management system. There are many great software options out there that can help you keep track of your inventory levels, what needs to be reordered, and more. Everything in one place will make your life a lot easier and help you stay on top of things.
4. Streamlined supply chain operations: Companies should strive to streamline their supply chain operations to ensure that goods are moving efficiently from the point of origin to the point of consumption. This can help to minimize disruptions in the supply chain and reduce the buildup of deadstock.
5. Use of technology: Companies can use technologies such as artificial intelligence and data analytics to optimize their logistics and inventory management processes. This can help to minimize the occurrence of deadstock and improve overall efficiency and profitability.
6. Regular review and evaluation: Companies should regularly review and evaluate their logistics and inventory management processes to identify areas for improvement and make changes as necessary.
7. Flexibility: Companies should be flexible and able to respond quickly to changes in market demand, consumer preferences, and supply chain disruptions.

By following these key points, companies can reduce the occurrence of deadstock and minimize its impact on their financial performance and reputation.

How to handle deadstock:

Handling deadstock effectively can help companies minimize its impact on their financial performance and reputation.

Steps to handle deadstock:

1. Identify the root cause: Companies should first identify the root cause of their deadstock, whether it is due to overproduction, inefficient purchasing, or poor inventory management. This can help them to better understand the problem and develop an effective solution.
2. Conduct a thorough inventory review: Companies should conduct a thorough review of their inventory to identify any slow-moving or excess goods. This can help them to prioritize which goods to dispose of first.
3. Evaluate disposal options: Companies should evaluate their options for disposing of deadstock, including selling it at a discount, donating it to charity, or disposing of it in an environmentally friendly manner.
4. Develop a plan for disposal: Companies should develop a plan for disposing of deadstock, including a timeline, target disposal quantity, and budget.
5. Implement the plan: Companies should implement their plan for disposing of deadstock, following best practices for inventory management and logistics to minimize the impact on their operations.
6. Continuously monitor and evaluate: Companies should continuously monitor and evaluate their efforts to dispose of deadstock, adjusting their approach as necessary to ensure that they are effectively managing their inventory and reducing the occurrence of deadstock.

Strategies to handle deadstock:

1. Return or exchange with suppliers: Return the items to the supplier. If the items are still in good condition, you may be able to return them to the supplier for a refund or credit.
2. Re-price, re-package, or re-market: Sell the items at a discount. If the items are still in good condition, you can try selling them at a discount in order to get rid of them.
3. Bundle with other products: Bundle with other products.
4. Consignment with other businesses: Consignment with other businesses.
5. Use for internal purposes: Use for internal purposes
6. Donate: Donate the items to charity. This is a great way to get rid of the items and help out a good cause.
7. Destroy: Throw the items away. This should be a last resort, but sometimes it is necessary to simply get rid of the items.

Dealing with deadstock can be a difficult task, but it is important to address in order to maintain a healthy and efficient supply chain. Dealing with deadstock can help companies to minimize its impact on their financial performance, reduce waste and inefficiencies, and maintain their reputation for delivering high-quality goods to their customers. By taking a proactive approach to identifying and addressing deadstock, companies can optimize their operations, improve their financial performance, and maintain their reputation for delivering high-quality goods and services.

Work flows for preventing deadstock – best practices

Here are some workflows that companies can follow to prevent deadstock:

1. Accurate Demand Forecasting:

1. Collect data on past sales, consumer trends, and market demand.
2. Use forecasting techniques to predict future demand for goods.
3. Adjust production levels based on demand forecasts to minimize overproduction and reduce the buildup of deadstock.

2. Effective Inventory Management:

1. Implement a system for tracking inventory levels.
2. Regularly review inventory levels to identify slow-moving or excess goods.
3. Adjust production levels based on inventory data to minimize overproduction and reduce the buildup of deadstock.

3. Streamlined Supply Chain Operations:

1. Implement efficient supply chain processes to ensure that goods are moving efficiently from the point of origin to the point of consumption.
2. Regularly review and evaluate supply chain operations to identify areas for improvement and minimize disruptions.

4. Use of technology:

1. Implement technology such as artificial intelligence and data analytics to optimize logistics and inventory management processes.
2. Regularly review and evaluate technology usage to ensure that it is being used effectively and providing value to the business.

5. Regular review and evaluation:

1. Regularly review and evaluate logistics and inventory management processes to identify areas for improvement and make changes as necessary.
2. Assess the impact of changes and adjust processes as needed to continue to improve efficiency and reduce the occurrence of deadstock.

By following these workflows, companies can improve their logistics and inventory management processes, reduce the occurrence of deadstock, and minimize its impact on their financial performance and reputation.

Conclusion:

Deadstock is a critical issue for businesses, as it can have a significant impact on their financial performance, reputation, and supply chain efficiency. By taking a proactive approach to addressing deadstock, companies can improve their overall operations and support their long-term success.

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