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How To Overcome And Avoid Dead Stock In The Warehouse

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Dead Stock
Dead stock, image by flickr.com

How to overcome and avoid dead-stock in the warehouse? In the business activities of the manufacturing industry, we often hear the term dead-stock. Deadstock is a ghost and becomes an enemy that must be avoided and destroyed. Why? Because dead-stock can make the company suffer losses from the financial side and lose some profits.

What is the definition of dead-stock? Dead-stock is not a material in large quantities or stocks in the warehouse which not used for a long period. The result caused by dead-stock is the company's cash flow will be less healthy and disturbed. Why? Because some of the company's assets are restrained and not moving in warehouses. We can roughly say that the company's money is held in the warehouse in the form of material that unfortunately the material can not be used for production activities over a long period. Loss? For sure, of course, it is important to manage the stock material properly so that the dead-stock case does not occur.

If we trace several factors are causing dead-stock in the warehouse, as follow:
  • Control over the weak supply of material.
  • Stock material that was never updated.
  • Change of spec material from marketing and engineering.
  • Storage systems in bad warehouses.
  • Minimum order from the supplier.
To know more detail about the factors that cause the dead-stock above, I will try to describe one by one as follows:

1. LOW DEMAND

When your business (in this case a marketing department) makes a sales forecast incorrectly, then the risk you have to face is the occurrence of excess inventory that cannot be sold. The excess stock will eventually end up as a dead-stock. There may be many reasons to cause a low demand for your product sales. As an example is a change in customer preferences or competitors in creating new products and better quality than your product, it can result in your product being less desirable to customers.

2. LACK OF COMMUNICATION 

Dead-stock may occur as a result of the miscommunication between the Warehouse team and your management. Your warehouse team may generate more stock supplies because management doesn't communicate how much inventory is needed to meet customers ' demands well with them. Another reason, apparently management is unaware of the existence of the dead-stock and is therefore not accounted for correctly by reducing production or giving discounts and holding promotional activities.

3. DEFECTIVE PRODUCTS

Dead-stock can also happen because your warehouse has an excess of damaged or malfunctioning products. This can happen when a particular product fails to pass through your internal quality checking and stored in the warehouse or when your customer returns a defective product that they have purchased from you. If no real action is taken to deal with it, it will result in a dead stock in your warehouse.

4. CONTROL OVER THE WEAK SUPPLY CHAIN OF MATERIALS

Why can this happen? As I've written in my previous article, the weak material supply control is caused by poor and less maximal planning. Buying goods in bulk because the price worries will rise from the supplier in the next order, causing us to buy the material beyond the forecast of the good's needs. The expectation is good, the efficiency of the purchase cost when the price has not climbed, but we do not realize the danger is lurking in front of our eyes because the chances of the deadstock are clear. If we do not check the order to Sales marketing whether the order from the customer for the type of product that uses raw materials that we are buying will still exist or not. If not then it is very risky for us to buy it.

5. STOCK MATERIAL HAS NEVER BEEN UPDATED

This is a fatal problem and error in the Warehouse management function. Why? Because one of the main functions of the warehouse is to maintain and present the data stock material updated and periodically to other parties in need. It could be from the management of the company directly, or can also from accounting. One of the required material stock data in an accurate warehouse is the Planning section (PPIC) and the purchasing section. If the stock material given to them is inaccurate or even more fatal is wrong then the part of PPIC and purchasing part will also be affected by purchase the wrong material. Consequently, the risk of dead-stock lurks us in front of our eyes.

6. CHANGE SPEC FROM MARKETING AND ENGINEERING

Often because the demands of the customer in the field are left by the many complaints that occur causing the marketing and engineering division to change the spec of certain materials suddenly. If this happens it is obvious it will cause we are forced to buy new material according to the spec that is requested. The question is, how about the old spec material stock that is still stored in the warehouse? Of course, this is the opportunity to be deadstock. In charge of the warehouse, of course, you must immediately take action to overcome it. If the material is left in the warehouse can not be used anymore, immediately ask the letter from Marketing and Engineering stating the status of the material with the knowledge of the management of the company. Thus the warehouse department will not be blamed.

7. BAD STORAGE SYSTEM 

BAD STORAGE SYSTEM
Bad storage, image by flickr.com

It is also a fatal fault of the warehouse management system. Storage places that have never been monitored regularly can cause the material to be tucked away and escape our control. If this happens then it will certainly affect the stock data that becomes not real and updates.

8. MINIMUM ORDER FROM SUPLIER

Based on my experience as a warehouse head earlier and now the head of PPIC, some suppliers set a purchasing policy that is a customer requires to buy the minimum amount of orders to buy if you want to buy goods from Them. It is certainly a risk that must be endured by us because we are forced to buy it even beyond our own needs because of what the stakes are the production process can be interrupted if we do not buy it. This can also be the chance of deadstock, moreover, if there is no guarantee that the product will be in production again.

After studying the factors causing the dead stock above, is there a way to prevent or avoid it? Of course, there is, the origin we want to strive and consistently run it. How to handle dead-stock can be divided into two types, that is a short-term strategy and long-term strategy.

Also read : How To Prevent Overstock In The Warehouse

Some types of short-term strategies, among others:

1. Provide Discounts To Customers

This method is the easiest strategy to get rid of the dead stock of your inventory. Providing great discounts in hopes of increasing demand for your products. Discounts should be large enough that customers feel given incentives and are interested in buying them. While on the other hand, sales of such products may not be able to make a profit with this strategy, but you will be able to recover some of the cost of production and increase your warehouse storage space for the inventory of goods that Other beneficial benefits.

2. Create Packages With Other Products

Your business can create a package by combining your dead stock inventory with related products in hopes of getting a higher demand. Your company can then sell this package at a discounted price. With a focus on higher demands for related products, you may be able to quickly get rid of the dead stock inventory in your warehouse.

3. Sell At Marketplaces Online

Another option you can consider is selling online on Marketplace. This Website serves thousands of companies who want to buy products at a cheap price, and it makes them can be an ideal target for your dead stock sales.

4. Return The Product To Your Supplier

Negotiating with your supplier to restore dead stock supplies can sometimes be a viable option in the try. While you may not be able to sell these products, your suppliers may know from customers who are willing to purchase those products. In some cases, they are willing to take it back.

It is highly dependent on the terms and conditions of the return policy at the time of the initial sale of the purchase, and you usually have to pay the Restocking fee for your supplier. This fee is usually the cost of repackaging and the cost of product returns to them. Also, your supplier rarely compensates for your return in cash. That is, they will provide you in the form of credits that you can use for the next purchase of them.

5. Donate To Charity

Instead of simply wasting your dead stock, you can donate these dead stocks to donations or charitable activities. Your product will be treated better than just ending up in a slitter barrel.

It depends on your tax jurisdiction, you can even get a tax write-off from the government by donating to charity. You should check with your tax consultant on what tax deductions will apply to your area if you donate the product to a charitable activity.

Meanwhile, for long-term strategies that can be done are:

1. Identifying the root causes of Dead-stock and taking precautions. Identifying the root cause of dead-stock is the most important step to fix it in the long run. Some of the things that are common causes are product lifecycle, changing customer trends, and the arrival of new competitors.

2. If there is a threat of price increase from the supplier, we (in this case is the purchasing part) must negotiate with the supplier. One is promising repeat order but with the condition, the price has not climbed or still uses the old price. Can it? Can, because if we promise repeat order then the supplier can also do the preparation of their raw materials purchase earlier, of course with their old price. Then another alternative is to immediately look for a substitute supplier as an alternative. It certainly takes time, because usually, the material of the new supplier for certain goods require test process testing by engineering before in use. But as an alternative to that choice, we must do.

3. Require that the material warehouse carry out the stock count result every month regularly. This must be done to get the real stock that is made as a reference of PPIC and Purchasing in the planning of production and purchase of materials.

4. Ask for the process of switching the spec can be done by spending the old spec of engineering and marketing. If you can not, then we can ask the engineering so that the old spec material still left in the warehouse in the switch to another type.

5. Updating an existing warehouse layout is an alternative that we can do. Reposition material by reclassifying existing material based on its group. The firmness of a warehouse chief is necessary so that all warehouse operators can run it properly. If there is one-two that is a bent to give warning. If it is not able to do the work properly then you are entitled to rotation other sections through the HRD.

6. In the business of intelligence negotiating is very important. Nowadays, minimum order regulation has started infrequently by the supplier. But if they still apply it then we can negotiate with them. The trick is, provide a kind of forecast purchase for the next few months according to the data needs that we can from marketing. That way it turns out I managed to do well. We need to know one of the reasons why suppliers applying minimum order qty To us is their cost will be closed if they produce our goods according to the minimum amount. By giving the forecast a few months ahead, they can do a one-way production process. The rest of the production that we have not requested can they store in their warehouse first.

CONCLUSION:

To prevent dead-stock, it is important to apply both short-term and long-term strategies above to improve your inventory management. Inventory management software is one of the best tools to assist you in tracking the movement of the product and preventing the occurrence of the dead stock.

That is the article on dead-stock material and how to prevent it or avoid it. Hopefully, this article will be useful to you.

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