Dead Inventory: What is it? [How to Prevent It, Eliminate It, and Prepare New Stock
There is still significant work to be done after your dealership’s inventory has been counted. This is due to the fact that your inventory count ought to have indicated which products are slow to move and which ones you can confidently designate as “dead inventory” or “dead stock.”
Your dealership is wasting hundreds, perhaps even thousands, of dollars that could be used toward other things if it has dead inventory on its hands.
For our guide on organizing your inventory for profitability, which is available for download at the bottom of this blog, we previously worked with industry professionals who provided their thoughts. We’ll cover everything you need to know about dead inventory, including how to deal with it and prevent it, using these insights.
You may manage new inventory to maximize your cash flow and come up with a practical plan of action for your dealership’s dead inventory with the assistance of the information in this blog post.
Summary of Contents
Dead Stock is another name for dead inventory.
What Causes Dead Inventory to Be a Problem?
What Are the Best Practices for Dead Stock?
How Can Dead Inventory Be Avoided?
How Should Inventory and New Stock Be Organized?
How to Organize Your Inventory Profitably: A Guide
Dead Stock is another name for dead inventory.
Other names for dead inventory include “dead stock” and “obsolete inventory.” Unsold goods that are unlikely to sell in the future are referred to as dead stock or dead inventory.
The most typical causes of dead inventory are:
The causes of dead stock might be many. The decreased demand for a product is one of the most frequent causes. A dramatic drop in demand may occur due to reasons beyond your control, such as the COVID-19 epidemic or the state of the economy. Dead stock can also result from a product’s declining client interest over time.
A customer’s lack of interest may also be influenced by quality difficulties. Defects in a product or unmet consumer expectations are both examples of quality problems. If customers have a negative experience, it may result in low sales and eventually dead inventory.
Keep inventory ordering consistent:
Last but not least, inconsistent ordering procedures, such as purchasing the item at the incorrect time, might result in dead stock. For instance, purchasing too much of a certain product in advance of holiday shopping could result in dead stock if only half is sold. The inverse is also accurate. You can completely miss the holiday shopping season and end up with dead stock in the new year if you reorder a product too late.
Keep an eye out for seasonal changes.
On that basis, it’s crucial to be knowledgeable about seasonal tendencies. A good dealership management system will be able to assist you in maintaining inventory control not only year-round but also in advance of seasonal buying patterns.
Take note of how each aspect is interconnected and how dead inventory can accumulate quickly if it is not correctly counted.
Read Next: Getting the Count Correct for Dealership Inventory Counting Tips
What Causes Dead Inventory to Be a Problem?
It is obvious that, if you let it, dead inventory can cause serious problems for your company. Nevertheless, it’s useful to consider why it’s an issue. By identifying the issues, you can develop the solutions required to reduce dead inventory at your dealership and reduce some of the uncertainty involved in inventory planning.
Money Spent
Buying inventory is an investment for the company. Selling products enables you to recoup your investment and make money. However, if you have dead inventory, you risk losing your investment. It at the very least reduces your chances of making a profit.
Less Room for Inventory
Deadstock not only costs you money, but it also takes up space that could be used for a product that sells more quickly. Your firm will suffer more the longer it occupies the premises because you will have to keep up with rent, utilities, and other expenses at your dealership.
The fallacy of Sunk Cost
Keeping dead stock on hand could also deter you from acquiring replacement parts since you might be holding out hope that the product will eventually sell. Due to the time, money, or resource costs, you have already incurred, you may likewise be reluctant to get rid of it. The sunk cost fallacy is being used in this situation. The sunk cost fallacy may be easy to fall victim to, but it will lead you wrong and force you to make bad choices that you otherwise may not have made.
What Are the Best Practices for Dead Stock?
You’ve now determined which items in your inventory are no longer alive. What’s next? There are numerous possibilities, so don’t worry.
Promote the products as a set.
Items must be related to one another in order for bundling to be effective and prevent customers from feeling as though the bundle is being imposed upon them or fails to adequately meet their needs. You can dump goods at a lower price than if buyers bought the items separately by grouping a slow-moving item with a fast-moving one or by bundling comparable products together.
Get things back
Manufacturers typically accept returned items once a year at the very least. They might accept some of the parts back and give you store credit or a discount on their price. Utilize that chance to establish procedures that will handle this process in advance.
Buy online
The fact that your present parts aren’t selling for your company doesn’t guarantee that another company or unaffiliated customer won’t buy them. Consider using online markets like those on eBay, Amazon, and even Facebook.
Selling to a rival
As strange as it may seem, selling to a rival allows you to get paid for your goods, especially if they could be required elsewhere. Despite the fact that your company may not require the item, based on their own inventory requirements, your competition may.
sales or specials
Selling your things at a loss won’t give you a 100% profit, but it will free up space in your inventory and increase your cash flow.
Read Next: 5 Best Practices for Online Dealerships That Customers Expect
How Can Dead Inventory Be Avoided?
Although dead stock can be removed, it is best to avoid having any in the first place. Here are a few strategies for preventing dead inventory. It starts with having the appropriate information available to you.
Utilize a dealer management system
A dealer management system tailored to your business should have tools for inventory and parts management so you can generate reports that show you precisely which items are selling well and poorly. Because you have up-to-date knowledge of your inventory, it also keeps better track of your inventory levels.
Decide on minimum and maximum ordering levels.
Another feature a good DMS should have is the ability to detect when your current stock of a particular item drops below a certain threshold, at which point the system will automatically place an order while making sure that the order doesn’t go over the threshold. Seasonal adjustments can be made to the MIN and MAX levels.
Accelerate the ordering procedure
To guarantee the prompt arrival of inventory and precise pricing, Electronic Data Interchange will automatically share crucial business information with your supplier. Additionally, this will lessen human error. In order to prevent dead inventory, having the appropriate knowledge and data is essential.
Continue reading to learn how Lansdowne-Moody uses data reporting to outperform its rivals.
How Should Inventory and New Stock Be Organized?
Make sure you know what you presently have and what you need before you even consider adding additional parts to your inventory. It’s crucial that your new buying judgments are not influenced by your gut instinct. Based on factual facts, make judgments based on things like customer feedback, sales figures, or your DMS. Make sure your organization system is effective so that you can add new products to the inventory area.
Racks and Bins
You should arrange your bin locations so that all the components are close at hand. It is better to use LISTA cabinets or shelves so that parts can be arranged according to location. Spark plugs, for instance, are located in Unit A, Shelf 1, Position A. All you need to do to find a specific part is where to look. You don’t have to spend time figuring out what it looks like because of this.
Similarly to this, it’s crucial to avoid overstocking the shelves and make sure they’re as clutter-free as feasible. This offers you the freedom to quickly rearrange components as needed. The bins will take some time to set up, but they will speed up and improve the efficiency of your parts and service department.
Parts Assembly
Take a look at how the parts are currently set up at your dealership. Your parts are probably not structured in an optimal way if they are arranged by vendor and vendor type. Sort the inventory by the manufacturer instead.
Reasons against sorting by the vendor
Due to part number renumbering, sorting by vendor might be challenging. Your objects that move the fastest wind up in the back as a result. The amount of time your technicians spend seeking parts will increase, decreasing the efficiency of your dealership’s service department.
Where to place your parts that move the fastest:
The exception is to position your technicians and parts staff as close to the fastest moving parts as you can. Additionally, it’s a good idea to organize similar kits together if you frequently go through them.
Once you have an effective organization system in place, you can decide what new goods are required and where to store them.
Update your parts management system.
You will gradually decide which pieces in your inventory you need to replace and which ones you can get rid of. Keep your organizational strategy as current as you can, and alter it as necessary. There is always more that can be done to optimize the management of your dealership’s inventory and stop dead stock from becoming a burden on your operations.
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