Last month we started our discussion of disposing of dead stock and excess inventory. The first step was to identify this unneeded stock. This month we will discuss the actual liquidation process. What can you do with this stuff? Consider these options:
Transfer the excess stock to another company location where the inventory is needed. Why not have your buyers consider transferring any quantity over one of your warehouse’s maximum stocking quantity to another branch where that inventory is needed. Why spend money to buy more of the product when you’ve already invested in that inventory, and it is gathering dust at another company location? This option is particularly attractive if the cost of transporting the product between branches is a small fraction of the value of the item.
Many distributors have instituted ongoing programs to transfer slow moving inventory to locations where it is in greater demand. This process is called inventory balancing. Lower ranked products in one branch are candidates to be transferred to other branches where they are “A” or “B” ranked items. Multi-branch distributors practicing successful inventory management balance their inventory between warehouses at least four times a year. In addition, a good replenishment report always lists excess inventory at other locations and allows the buyer to decide whether or not this inventory should be transferred into the branch currently needing stock.
Return Material to the Vendor. The actual desirability of this option varies with each supplier. Some vendors are very good about accepting returns. Others assess so many charges and conditions that returning material is not a feasible option. Remember that the best time to negotiate the terms for the return of material with a vendor is before you agree to take on a new product line or place a very large purchase order.
Reduce the price to “move” the excess inventory. Department stores do it, why can’t you? This works especially well when the customer has some discretion as to which of several items she will purchase. For example, a customer might purchase a discontinued sink if the price is substantially lower than a similar item from normal stock.
Offer your salespeople a monetary incentive to sell the product. This works especially well when a customer can choose between several products that will meet his or her needs. Sometimes it is almost miraculous how fast inventory can move when salespeople are provided with the proper incentive.
Remember that inventory is not worth what you paid for it, it is worth what someone is willing to pay you for it.
There are several reasons why you should utilize the internet when liquidating unwanted material:
You don’t have to reinvent the wheel to take advantage of this method of inventory liquidation. There are many established “surplus market place” sites. To locate ones that will help you the most, perform a web search with the words “surplus” and “inventory” followed by the product line containing the items you would like to liquidate. If you have a considerable amount of inventory you would like to liquidate, consider subscribing to an inventory sharing service; WarehouseTwo.com is a good example of on these cooperative sites.
Websites can be easily updated as you sell unwanted material and discover other products you want to liquidate.
The internet is continually available to your potential customers. They can search for products they need 24 hours a day, 365 days a year.
The internet provides you with a world-wide market. A product may no longer be used in your area, but it is still needed by customers in other regions or countries.
You must realize that not all excess material can be sold over the internet.
Excellent – Generic products (or products whose quality is assumed by buyers) that have a large number of potential customers and a large number of possible applications or uses.
Good – Generic products (or products whose quality is assumed by buyers) that have a large number of potential customers but a small number of possible applications or uses.
Fair – Products with a large number of uses but a low number of potential customers. You will probably get better results if you directly approach these customers.
Poor – Products with a small number of uses and potential customers.
Combined with the other inventory liquidation methods we have previously discussed, the internet will help you remove the “fat” (i.e., unwanted stock) from your inventory.
Remember that inventory is not worth what you paid for it……it is worth what someone else is willing to pay you for it.
To know more about how The Idea Smith lean principles and PDCA methodology can help your company improve profitability by reducing lead times, costs and wastes while increasing throughput and customer satisfaction , get in touch .