Retailers rely on selling products to make a profit. Learn about dead inventory and how it costs businesses to avoid this issue in your own operations.
In business, “dead inventory” refers to unsold stock. Retailers may end up with unsellable products for several reasons, including over-ordering, damaged items, and decreased in demand. To run a successful business, you need to avoid slow-moving inventory as much as possible.
How does dead inventory cost businesses exactly? The simple answer is that it is expensive. However, the problem is slightly more nuanced and does have other repercussions. Understanding the implications of dead inventory will help you make better decisions for your company in the future.
Less Storage Space
It makes sense that having too much stock would take away valuable storage space. Accommodating excess inventory may force you to make unsafe storage decisions when you have less available room in your warehouse.
The good news is that there are ethical ways to dispose of your additional items. The environmental benefits of outdated product destruction make it possible for businesses to eliminate dead inventory without contributing to the world’s growing garbage problem.
Unorganized Workplace
Dead inventory costs businesses by way of poor organization. Since you’ve lost space in your storage area in order to keep unsold stock, you’ll have to get creative to find room for your excess items.
Unorganized workplaces overrun with dead inventory are difficult to navigate. It also makes it hard for automated picking processes to locate items when things are in disarray. If you want to improve your inventory management, removing slow-moving products should be your priority.
Increased Insurance Payments
Businesses carry insurance to protect their products. The more items you possess, the more you’ll have to pay in premiums. This isn’t an issue if you’re making a profit; however, unsold inventory increases your rates without any payoff.
Dead stock also makes it hard to meet merchandiser debt demands. Interest rates rise the longer it takes for you to sell your unsold products. Running a business is expensive enough; slow-moving items only add to your bills.
Wasted Money
Ultimately, having dead inventory is a waste of money. Retailers often buy merchandise from suppliers, and these purchases are meaningless if you can’t sell them to make a profit. You lose the cash you spent stocking your storefront when you can’t move your product.
In addition, unsold items cost you wages, transportation, and holding costs. You have to pay people to sort through your inventory. Transporting items to and from your storage space also costs money. Most warehouses also charge a holding fee, which only increases as it collects more items. The costs just keep piling up the longer you keep the dead product.
Optimizing your inventory management processes is the best way to avoid dead inventory. Consider investing in software to track trends and report on item success, so you know exactly what to buy and skip.