I am sure many of you would be looking at ways of reducing costs, especially in the current economic climate. A simple yet effective cost control strategy revolves around managing your Dead Stock.
What is Dead Stock?
It is nothing but the stock that you have purchased previously which is still hiding in the aisles and corners of your Retail stores and Warehouses, literally gathering dust.
Although your store may appear to be well stocked and full, this Dead Stock is giving you a false impression of the overall value in the store.
Why do you need to minimize your Dead Stock?
My guesstimate is, between 20% to 35% of your stock holdings could be classified as Dead Stock. This means that a store with a monthly stock budget of $100K could potentially have $20K to $35K worth of cash tied up as Dead Stock.
If this stock is not identified and acted on, the value could grow and eventually reach unmanageable proportions.
On the positive side, if a conscious effort is taken to manage Dead Stock, you will be left with more cash in your business. This will have a positive impact on your cash flows and help you purchase the stock your customers really want and thereby make you more profits.
Managing dead stock can be made easy once correct procedures and practices are put in place within the business.
Ways to define Dead Stock?
The definition of Dead Stock is a personal choice and depends on one's perspective.
A few possible ways to look at Dead Stock are
A stocked item with 0 sale during the last 6 months
Those who prefer tighter control can consider 4 months instead of 6
Others may want to further categorize products and have different time periods for different categories. (Examples could be, 3 months for IT consumables, 6 months for Stationery, 4 months for Business Machines and so on)
Whatever the criteria you choose, the important point to note is 'not to make the logic too complex'
If you find yourself having to deal with complex logic, there will be temptation to give up, so commence with simple logic and increase the complexity as you become more experienced.
In my next blog we will talk about different Strategies you could employ to reduce your Dead Stock. We will also look at the data fields you need to export from your stock sheet to identify the Dead Stock.
