PERSPECTIVE: Solving the Problem Of Dead Stock

John Wolz

Dead stock has many names, such as surplus, excess, overstock, according to Dean Jester of Prophet 21.
“Anything still sitting there that has last year”s inventory sticker on it might be dead inventory,” Levin noted. “Dead stock is something that is costing you more money to keep than it”s worth to your business.”
Speaking at the Los Angeles Fastener Association dinner meeting, Jester noted that there are real challenges in the fastener industry on moving dead stock, because “fire sales” used by other industries do not really apply.
Jester said businesses devised a ratio years ago called “turn & earn” that calculated how frequently an item needed to be sold to achieve a fair return on investment.
“If I could sell something one more time, I would raise my contribution by 25%.”
Owners was trying to determine where to invest money, how frequently they could expect to turn the inventory, and what the gross margin on return would be. Such a process allows distributors to better understand how inventory affects their business, Levin explained.
To the audience”s surprise, Jester claimed that in a typical fastener distributorship stocking 25,000 items, about 2% of the inventory has the potential to generate half of all sales dollars in a given year.
In most distributors between 30% and 40% of stock items have not sold in the last 12 months.
“People generally feel that the cost of dealing with dead stock and getting rid of it is more trouble than it”s worth.”
Jester said it does not take a computerized analysis to determine which items fall into the “dead stock” category.
“You know which items are selling and which are not selling.”
But when it comes to tracking product, the fastener industry”s notorious lack of standardized item coding foils even the most sophisticated attempts to manage inventory.
“What do you think Home Depot and Wal-Mart are doing? It”s amazing what they”re doing. They”re both driving the costs out of the supply chain so dramatically that we all know or hate the fact that they”re putting smaller friendly businesses out of business completely, forever.”
Jester, who has been in the software business for 28 years, said technology exists that can link distributors as online trading partners, giving instant access to accurate stock counts. This could eliminate one source of dead stock manufacturers” minimums.
“Instead of buying 1,000 when you need five to service your best customer, wouldn”t it be great if you could see if other people have it right from the buyer”s screen (on your computer)?”
This method could allow distributors to generate cost reports at the end of the year showing how much money had been saved using such a system.
Solutions to Dead Stock
So how do you keep from getting dead stock? Jester said the first step is education understanding what its impact is on your business.
Also, invest in new technology that can help keep you from buying in quantities that are going to sit on the shelf for years.
Evaluate inventory constantly, even if it means setting aside an hour a day for a couple of months to get an understanding of what product is moving.
“Make it a mission,” Jester urged. \ �2005 FastenerNews.com