Tips For Moving And Avoiding Dead Stock

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

Blame inadequate up-front purchasing decisions. Blame distributors’ inabilities to properly control their inventory. No matter the cause, dead stock continues to haunt distributors across the country.

Defined as a product that has had zero sales in the last 12 months, dead stock is a cash-flow killer for jan/san distributors. It takes up valuable warehouse space and freezes earnings that could otherwise be dedicated to the purchase of revenue-generating products.

In most cases, distributors have too much dead inventory. It’s not unusual for a distributor to have as much as 20 percent of its total inventory investment tied up in stock that won’t sell. Liquidating dead inventory can be painful, often resulting in revenue that is well below the book value of the inventory being liquidated. But attempts to resuscitate that dead stock, to avoid taking a loss on that unmovable inventory, are only dragging distributors down.

It’s time jan/san distributors exorcise the dead stock from their warehouses and harvest captive dollars for sellable merchandise.

Most times, dead inventory can be directly associated with a distributor’s poor purchasing decisions.

“A lot of dead stock comes from bad decisions in the beginning,” says Jason Bader, managing partner of The Distribution Team, Portland, Oregon. “They thought they had a product that customers would want, and they never did.”

The excitement to grow, expand into new territories and take on new product lines often results in a graveyard of dead stock in distributors’ warehouses. Out of 10 new products a distributor brings in, only three actually become living, breathing, selling inventory, says Bader.

“Seven of those 10 items are just dead on arrival. They were bad decisions to begin with,” he says. “It’s a terrible batting average for these guys.”

Instead of bringing in new products on a gut feeling or for the sake of appeasing a single customer, distributors should structure their decisions through a purchasing committee. This group can then decide which items are best-suited to bring into the distributor’s inventory, says Chris Nolan, president of H.T. Berry Company, a jan/san distributor based in Canton, Massachusetts.

H.T. Berry’s purchasing committee has kept dead stock to a minimum by implementing an inventory-approval process that screens new inventory items. Nolan, along with the company’s vice president of sales and the director of purchasing, go through a series of questions before making a decision to bring on a new product.

“When we look at a new item, we say, ‘Is this overkill? Is this overlap? Is this truly needed before we actually bring it into stock?’ And then we make a judgment on that,” says Nolan. “That, on the front end, has been extremely successful in lowering the percentage of errors we have when it comes to bringing in something that could turn into dead inventory.”

Some distributors will even bring in a new product and have customers test it before committing to purchasing it.

But even after a product review by a customer, there are still times where the products don’t pan out and they become dead stock. So, before investing in new products, Bader says distributors must align themselves with vendors who can offer insurance policies that states if a product doesn’t sell, it can be returned at little cost. Distributors should push for a minimum of a nine-month, no-penalty buy-back option.

“If a manufacturer is not willing to give you that guaranteed buy-back, what did he just tell you about their confidence in your ability to sell that product? If they’re not confident in the product, why should you be? I tell distributors, ‘If these guys aren’t willing to put their money where their mouth is, then I’m not interested in putting mine there either,’” says Bader.