Knowing the real time stock availability across the channels of your organization leads to lucrative profit
Excess inventory is an issue faced by most of the SME s due to non-visibility of stock on real time, but retailers & distributors have some other unique challenges not as common at other businesses.
Based on a research
- Over 60% of the customers were willing to seek another retailer if a brand isn’t able to offer their preferred products fulfillment.
- 2/3rd of the customers reported that they are less likely to buy from retailers who are unable to confirm product availability.
- Studies have shown that the annual additional cost of holding excess inventory can be 25% to 32% of gross margin.
This results in lower operating profits. When there is no real time inventory visibility, you may hold more inventory than you need, but cannot identify the availability or SKU of the products when it’s needed for sales.
Your Income Statement suffers in two ways,
- Lower gross margin due to lack of effective conversion of potential prospects to customers&
- Increased Operating Expenses for additional space, labor to manage, excess investment on the stock and taxes.
Dead stock or Slow-Moving Stocks are referred as stocks which are not moved or laid for long term in warehouse and over the period of time those stocks will be become obsolete and useless.
“According to the studies the well-run companies are also have anywhere from 20-30% of inventory as dead stock. These dead stocks can affect in the business profitability in long term”.
#Reasons for dead stock:
1. Low Demand in market – When demand is less in market & stocks are more in Warehouse, the stocks will become slow-moving or dead stock.
2. Inaccurate Forecasting of demand & supply – while purchasing the products from the vendor, know the sales trend of the product in stores. If anything is ordered excess that may become obsolete in warehouse
3. Communication between Warehouse team & Sales team – if the company doesn’t have livestock reports with the sales team, that may cause in under the utilization of the items in warehouse.
4. Lacking Inventory Management systems – inventory systems are very much important in a company to know the stock in hand, procurement of stocks & sales trends in the market. These 3 aspects will give the clear knowledge on the company inventory costing. These 3 things may go out of reach when there is no inventory management in an organization.
#Impact on business by dead stock:
1. Cost of Warehouse & Space utilization: if the cost of the warehouse is increasing that means the working capital /return on investment Cash held up in non-selling inventory is what we call non-working capital. The investment should be working to bring profits which can be re-invested to buy fast-moving stock that will generate even more profit.
2. Offers on old products – This will reduce the profit of the company by giving offers on the product. These costs are often hidden cost for the company.
3. Opportunity Cost or Carry cost – the company is spending money on a dead inventory item & the held-up money that can’t be used to procure an item that will sell and gain profit. This will indeed make loss to company by reducing the sales by not procuring the fast-moving products.
4. Lost sales cost of inventory – when there is high demand for product & low inventory levels in a company that will directly affect the Gross profit of the company as the products can’t be sold when there is high demand in the market.
#Liquidating the dead stock:
1. Bundle it with other products. Combine and sell it with related products at a discount
2. Purchase Return – By returning the stocks to the vendor will circulate the stocks to others who can make use of it.
3. Promotions & discounts on Product- apply discounts on outdated products, combo offers with fast moving products & higher loyalty points can be given to slow moving product.
4. Organised the stock in warehouse where staff can easily find the slow-moving product easily. So, that the items can be disposed after the certain time of doing purchase & also, by adopting the inventory management system in the organization can help making of it.