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Four Steps to Managing Dead Inventory (Part 1 of 3)

Dead and slow-moving inventory is a harsh reality for all distributors. Proper management of dead stock is often ignored, but it is a task that requires specific action steps and careful planning. The steps involved in reducing your company's risk of being adversely affected by excess and dead inventory include: Identify, Prevent, Coordinate and Dispose.

Identify
First, decide when your inventory officially becomes “dead.” Twelve months of no sales is typically a good starting point. However, beware of seasonal items if using less than 12 months as your measure. Your trade association may also have specific recommendations.

Second, know the return policies for your suppliers. If your supplier has a return policy for items purchased under 12 months, the items need to be tracked from inception to non-moving status.

Continuously track your lot items about to expire. Make sure lots that will expire within two periods are either sold first, or returned to the supplier.

You can run an Inactive Items Report in your ERP system by a last order date, and/or last purchase date. Or create an ABC class that is set to 100% threshold.

  • Commonly, 12 periods of zero sales will be considered at 100% threshold and should be grouped into a “dead” class.
  • You can create multiple dead classes, such as a “going dead” class at 98.9% threshold, commonly known as “dead or dying.”
  • If you have seasonal items, be careful of “seasonal dead” items; i.e., items that are good movers, just not in the current period.

Once dead items are identified, calculate the inventory value, making sure to add your carry cost. This is easier to do if using the ABC Class method than the Inactive Items Report, because the Inventory Value Report exports to Excel, whereas the Inactive Items Report does not.

It is helpful to move dead items to a specific area of the warehouse. Making these items visible will remind employees to attempt to sell/negotiate when talking with customers. This is a good practice for seasonal items, as well, to make room for moving items.

In our next blog post, we will discuss the Prevent and Coordinate steps of dead stock management.

Posted by Neil VanWalbeck, Senior Professional Services Consultant at Epicor Software

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