It takes a while to generate enough usage history on a newly stocked item to work out how much you should carry in stock. Once you first stock an item it sells initially in a spike as your customers stock up then sales settle down.
New items are the biggest source of dead stock. Stock that was actually dead on arrival – or destined to be. You’ve bought 12 of a new “hot” item and sold 5 and the remaining 7 sit on the shelf in stock for ever. The original ordering person or reason doesn’t seem to be able to be found.
When buying new stock lines there is risk. What we are trying to achieve is to mitigate dead stock. New lines can be separated into three groups. Low risk of becoming dead stock, medium risk & high risk or becoming dead stock. Access them against these criteria.
Low risk
- New items have a series or signed customer purchase orders.
- Non-Stock or special products that are ordered against a Sales Order and eventually they become secure enough to transfer to a stock line.
Medium risk
There is a fair chance these items will become dead stock. The source of the buying ideas are from sales persons or customer suggestions.
“We could sell 1,000’s of these if we had them in stock”
These items typically spike after the initial orders as customers stock their shelves or the sales person remembers to ask about them on their sales visits, or the customer bought a small amount just to try it out.
To put a brake on dead stock coming in it is a good idea to have a new stock reason sheet. You should cover the following points when you are thinking about new stock lines – after all the idea here is to reduce dead stock.
Questions to ask in the reason review |
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Salesperson requesting the stock |
What is your track record? |
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Location |
Where will it be stored and stocked? |
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Potential customers |
How many, just one or many, what has that customers track record been at meeting their “request”. |
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Reason why you should stock it |
Change of supplier, replacing another product, new process in the customers operations? |
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How much will be consumed? |
Who is the predictor, past history? |
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What is the initial order amount? |
Can we order much less to start? |
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What would an auction price be? |
If you had to sell it at liquidation disposal pieces? |
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Marketing |
Then you need to implement processes to ensure the new productivity enters the market with enough force. |
High Risk
Vendor suggested products are at the most risk of ending up as dead stock. Lots of gusto, lots of predictions, lots of your cash. To mitigate your risk organise for vendor return at no cost to you if it doesn’t sell. Have that period be substantial, not 30 days, make it 6 months or more. Alternatively just get a small amount, pay a bit more, even a lot more but it will give you an illustration of what the product actually sells like.
Also remember that any new line you introduce will or could “cannibalise” your existing sales either partially or in full, changing relationships with the suppliers of those lines. There is a lot to consider.
