Pay The Restocking Fee And Move On

This is the third part of a four-part article about dead stock.

When dead stock is discovered, distributors should make a concerted effort to get it out of their warehouses as soon as possible.

“Every dead item has a story attached,” says Paul “Dutch” Owens, president of Gem Supply in Orlando, Florida. “We used to spend a lot of time on the story — whose fault it is, playground stuff like that. The story is not important. What’s important is that we are able to identify it as dead as soon as possible and then get that item turned into as much cash as quickly as possible.”

The longer dead stock sits on warehouse shelves, the more money is lost. Dead stock isn’t dead money. Dead stock should be looked at as captive dollars that can be converted into spendable cash.

There are several ways to convert nonproductive assets into working capital. The most popular method is returning product to the supplier from which it was purchased.

“Getting inventory back to the people you bought it from is probably the No. 1 tactic,” says Bader. “Explore your vendor returns as much as humanly possible.”

Most manufacturers will charge distributors a 25 percent restocking fee for returning product. Distributors often try to avoid these restocking fees, because they’re costly. But distributors should get over their fear of restocking charges and recoup their money before it’s too late.

“It’s OK to take a 25 percent restock charge,” says Bader. “I’m OK with that, because I’m going to get the 75 percent and I’m going to go reinvest it in something that works for me. That cash is not doing you any good sitting on that shelf. Get it back in the hands of the manufacturer, take your beating, but take that 75 percent and invest it in something that you can turn your money back over on.”

For distributors that don’t have the ability to return inventory to the vendor, many find that enticing sales reps with monetary incentives helps clear out the unwanted product.

“We do some little promotions for inside sales to try and push those products,” says Nolan. “In some instances we may have three cases left over of a product that we don’t want to carry over to next year. Our inside sales reps will promote it on the phone to people they know.”

However, where distributors go wrong is having outside sales reps try and sell dead stock items. It’s a better idea to give an incentive to inside sales reps instead.

“A lot of these [outside salespeople] had 12 months to sell this in the first place, why am I going to give them more money to sell it now? I would rather push the incentive towards the inside salespeople rather than outside,” says Bader. “Inside salespeople are in a better [position], because, frankly, they speak to more people in a day than an outside salesperson can. They can talk to 30 to 40 people on the phone during the day, whereas an outside salesperson might talk to eight to 10. You just have a much better opportunity.”