Step 1: Can you return it? – "You never know until you ask. If you ask firmly, and structure your request as a win/win proposition, most vendors will be reluctant to respond with a flat out ‘No’” suggests Ted. Look for a value you can offer your vendor in exchange, perhaps a test order on a new item or program they have wanted you to try, or perhaps open talks to establish a preferred/prime vendor arrangement as discussed in issue 21. Remember that you’re asking your vendor to accept a real cost in taking this return. Make it clear that this is a one-time request for an unusual situation. If the vendor can’t take a direct return, ask if he can point you to a market or another distributor who would be interested in taking the product. Step 2: Segment your dead inventory. "It is critical to recognize that dead inventory is made up of merchandise with dramatically different characteristics and market value.” Ted recommends breaking the inventory into three categories Low hanging fruit, sludge, and everything else. - Low hanging fruit – The best of the worst. This is the most desirable of the dead inventory, the most marketable, and easiest to sell and turn into cash. Select an item , feature it, and price it to move now, and get your cash. When it sells through move to your next piece of low hanging fruit. Ted’s take here is “If you’ve been struggling with tight cash flow, this is a tall cool drink on a hot summer day.”
- Sludge – “We all know intuitively what sludge is: It’s the bottom, the worst, the oldest, most worn, most outdated, and it’s toxic! When you see it mixed in with low hanging fruit it makes that look like sludge as well…The ugly truth is that sludge has little or no market value. It doesn’t merit the time and effort necessary to try to sell it. Think about donating it to charity.” Charities provide the tangible benefits of a tax deduction, and the possibility of some good-will publicity. Ted goes on to say “In the end, if you can’t find a charitable organization to donate your sludge to, donate it to your dumpster.”
- Everything Else – “Not as desirable as the low hanging fruit, or as toxic as the sludge, the rest of your dead inventory can be segmented yet again.” This is Round 2, 3, 4 and so on in your fight with your dead inventory. Slice off your next most desirable layer, feature it, and price it to move. Understand that each layer of inventory is going to require a greater discount or incentive to stimulate your customers. Ted cautions “As you go along, in fact, the least desirable inventory in this category will start to look and feel more and more like sludge, which is a good sign that you’re near the end of the process.”
Step 3: Pricing for Dead Inventory – “Selling dead inventory is not like running a regular sale. Dead inventory is different…it’s generally older and lacking a current demand. Price it to be irresistible. Forget what you paid for it, or are carrying it on your books for. It’s not relevant!...That was then, this is now. What is relevant now is the price your customers will pay for it now!” Dead inventory is losing market value every additional day it’s sitting there. It represents cash that is needed for other critical purposes. By taking these steps distributors can control the Costs of Dead Inventory, but remember patience. Dead inventory sell-off should be structured to have minimal impact on your regular business and should represent a very small part of your sales presentation at any one time. Pushing too hard with too many dead inventory items at once can reinforce to the customer that these are undesirable products, and can give the impression that your company is desperate to get rid of them, or worse hurting for cash. If you have time sensitive product, pull back other dead inventory until it is clear. | Cost of Maintaining Dead
Inventory for 1 Year
111% per dollar stocked! Based on:
Warehousing Costs: 4%
Interest Cost: 7%
Expected profit margin: 25% by
Industry Standard Turns/Year: 4 = 100%
Cost of Dead Stock = 111% per year !!! Thanks to Deadstock Broker for the math, but lets look at that in Food Dollars… You have 500 pounds of frozen vacuum packed fish that you purchased at $1000, and has a shelf life of 6 months. The brand goes out of business and you end up stuck with it in a very soft market. If you let this go to spoil it costs you: $1000 initial purchase
+ $20 in storage
+ $70 in interest
+$500 in lost profit potential
$1590 That’s $1,590 out of your pocket for 500 pounds of dead inventory. Price it to move. Get it gone! 
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