What do we do with your dead inventory?
One of the most common struggles all distributors face is managing their dead and obsolete inventory. It is one of those back burner items that no one wants to bring up for fear that they will be appointed to deal with the task. Most people like to employ the ostrich approach to dead stock – just stick our head in the sand and hope it goes away.
One of the more novel approaches I have ever heard of took a little help from Mother Nature. This clever individual had a facility right next to a river that flooded seasonally. He had built this large deck overlooking the river in order to entertain customers and employees during the summer months. On a particularly wet year, they received word that the river was going to flood much higher than usual. When life gives you lemons, make lemonade. The distributor hauled all the dead inventory out to the deck. He sandbagged the walls of the facility, in order to protect his turn and earn inventory, and let the rising river manage his dead stock for him. Something tells me that Allstate would take issue with this approach.
The power report I will be discussing this month deals with a more proactive approach to managing dead inventory. As in previous articles, I believe that the key to getting a return on your software investment is to learn how to extract and manipulate data. We all paid a significant sum for our software, yet we typically use only a fraction of the capability. Mastering the report generating function will substantially increase your overall system utilization and give you the tools necessary to make significant improvements to your bottom line.
A number of years ago, my business partner Scott Stratman wrote an article where he stated, 'Wouldn't it be great if deadstock would just stink?' As inventory managers, we have a very difficult time identifying the moment in time when a product ceases to be part of our turn and earn inventory. Our lives would be infinitely easier if we would enter the warehouse on the first day of the month and a pungent odor, something akin to dead fish, would tickle our nostrils. We would be forced to hunt down the offending item and eliminate it from the premises. Unfortunately, most of our products do not emit an odor when they perish. Our challenge is to use our software to make them stink.
When I speak to distributor groups, I usually pose the question, 'If I wanted to find the dead stock in your building, I would ask for one piece of equipment. What would it be?' Several folks mention the white glove and a dust mask. Perhaps, but I have a feeling that a majority of our live products would not stand up to white glove scrutiny. I would ask for a ladder or forklift. I'm not sure where we picked this up, but we tend to move all the dead stock a little closer to heaven. It could just be the old out of sight, out of mind. In many facilities, there is no discernible separation between the dead and the living. Both occupy the same shelf space.
In order to help us identify our dead inventory, we must define the moment of death. We have seen some unusual methods for defining the point in which an item is classified as dead. The rainbow method comes to mind. During an annual physical inventory, many distributors use colored dots to mark the items that have been counted. When a product displays stickers from all colors of the rainbow, it is most certainly dead. I would not suggest that this is the most effective definition. In our practice, we suggest that distributors choose a moment in time. When was the product last sold?
Request your copy of this insightful free article today to read additional information such as:
- Using your Distribution ERP system to look for 6 critical areas for reporting.
- Identifying Dead Inventory
- Managing Dead Inventory Cost