Solving challenges that can be presented by “dead inventories” can help overseas manufacturers overseas, retailers and inventory management and their supply chain teams recover from the potential impacts on lost profit opportunities on such goods.
There are a variety of approaches for dealing with dead inventories that companies may utilize on the front end of the goods manufacturing or sourcing process and, on the back end when goods are now in stock at a retailer’s distribution center and unanticipated inventory problems present themselves.
What is dead inventory?
Dead inventory (also referred to as dead stock or obsolete stock) is any products in inventory that an overseas manufacturer or a retailer in a major sales destination such as the U.S. controls and may be having real or perceived trouble selling as originally planned. Causes of dead inventory can often arise from issues such as order cancellations, minor or major defects in the merchandise, and sales forecasts not meeting expectations.
There are many costs involved when businesses have dead inventory on their books that can impact their bottom lines and cash flows. However, the good news is that there are a variety of methods to minimize the potential for dead inventory problems thereby preserving or recovering profit opportunities.
What are some of the tools and techniques used by companies for dead inventory management?
Being proactive and paying attention to your inventory management efforts, especially dead inventory, is critical to success. Quality assurance programs and inventory management systems are often implemented to help reduce the potential for dead inventory issues. Some techniques include, but are not limited to:
- Software for inventory management and QA tracking purposes.
- Use of accredited 3rd party audit and inspection firms for quality assurance inspections at overseas manufacturing and shipping locations.
- Conducting inbound quality assurance audits such as AQL audits at destination receiving locations.
- Working closely with suppliers through effective contract terms addressing product returns, defects, restocking fees, and more.
- Implementing product rework initiatives such as alterations, repairs, or product repackaging of goods for example.
How can a company recover or repurpose dead inventory to positively impact cash flow?
Addressing the challenges of a dead inventory situation in creative ways may present excellent opportunities to create cash flow opportunities and result in positive product recovery solutions.
- Bundling, Kitting, Repackaging – Combining products, such as a dead inventory item with another popular better selling product is one approach retailers have utilized to create new sales opportunities utilizing dead inventories. A new packaging configuration presents the product in new way that may make it more attractive for customers and potentially help in recovering dead inventory costs.
- Rework defective merchandise – In many cases, correcting real or perceived defective merchandise can be a viable approach by returning the products to first quality and resulting in opportunities to sell goods at the originally planned price points.
- Re-branding – Some companies may find themselves in the position where an order cancellation by the buyer has stranded the product at its destination with no apparent buyer, especially when goods were labeled with the original buyer’s markings, UPC codes, company brand tags, and more. In this case, perhaps the overseas factory may want to consider a re-labeling or minor product alteration and find a new buyer for these goods. In other cases, perhaps a retailer originally sourced and labeled a product for sale in the U.S., but now finds excess inventory on stock that could be better positioned for sale in another international market where the demand is high. In this case, the product may need to be relabeled to meet that market’s labeling rules and regulations. These are just a few representative examples where re-branding or a repackaging may be beneficial to turn dead inventory into profitable merchandise again.
Companies that decide to undertake dead inventory recovery projects often turn to experienced 3rd party product rework firms such as Quality Corrections & Inspections in the U.S. which specialize high-volume projects involving kitting, rework of defecting merchandise and various types of re-branding services such as those described above.
- Liquidate – A variety of firms may be available to buy your dead inventory goods and then undertake the efforts to sell or resell to others. These types of firms are often known as “wholesalers” or “jobbers”.
- Inventory Write-off – Depending on the circumstances and tax laws, there may be cases where a business can take write offs for accounting purposes and potentially be eligible for tax deductions. In any case, check with your tax professionals for advice.
With some creativity and a proactive approach to managing and addressing dead inventory issues, businesses can help make an improved impact on their bottom lines.
Mr. Randy Burk
Executive Vice President and “Creative Problem Solver” for Quality Corrections & Inspections