In the previous blog post, we covered the first step involved in reducing your company's risk of being adversely affected by excess and dead inventory: Identify. This month, the next two steps – Prevent and Coordinate – will be explained.
One sure way to nip the dead inventory problem in the bud is to prevent the creation of new items that don’t fulfill a true business need; i.e., items that get purchased without a customer need backing up that purchase. Don’t let the Sales department make inventory stocking level decisions. Utilize the non-stock or temporary item functionality of your ERP system first. That way, temporary items get created as non-stock, just like non-stock items. The stock flag on the item / location serves many purposes. Most importantly, these items will not come into purchase requirements to be purchased—they will only come into purchase when a customer order has been placed for them.
The Purchasing department should determine stocking levels, using time-tested methods. One such method is to track items from the first period stocked:
• ABC classes work well, such as creating classes like JAN, FEB, MAR, through DEC.
• Place stock items into the ABC class for the month first stocked, using a process of elimination; then re-class after 6-9 periods:
Ø General ABC population
Ø Dead Item Classification.
• You may want to go further and use two dead items classes:
Ø Dead: items with history that have not sold in 12+ months
Ø New-Dead: newer items that have not sold in slightly less than 12 months; for example, an item created in January 2012, with no activity through January 2013.
Last but not least, do not allow branches to “hoard” slow-moving inventory, and closely monitor stock levels for your customer-specific inventory (for overexposure).
As you begin to track more closely, you can more accurately determine: is the item—or the customer—dead? Using sales history reports, compare to customers that were buying the items. Is the customer still active?
Involve all employees in the effort to move dead items. For example, share the Dead Inventory Report with Inside Sales, and offer deeper commissions for moving these dead items.
Coordinate management, Sales, and Purchasing to manage new items, and the quantities to maintain. Instead of just the salesperson asking to bring the item in with a stock level, work with buyers and management to determine if the item(s) bring in true value, what other customers can be sought out to purchase them, and so on.
In the final installment of this series, we will discuss the Dispose step of dead stock management.
Posted by Neil VanWalbeck, Senior Professional Services Consultant at Epicor Software Corporation