Ways to Reduce Inventory Write-Offs

An inventory write-off is a formal recognition that a portion of a company’s inventory no longer has value. Sometimes inventory write-offs are necessary. However, if the inventory write-offs are large and frequent, it may indicate that a company has poor inventory management. So, how do you reduce inventory write-offs? Let’s look at some important tips on how to prevent and reduce inventory write-offs with a proper inventory management system in place.

Avoid Excess Purchasing

It’s easy to get excited and manufacture a large number of products to sell, but if you don’t carefully measure your expectations, you could end up with dead stock that isn’t selling or that you need to sell at a discount just to get your customers interested. Every business must know how much inventory is required for each ordering season and ensure that they do not carry too little or too much stock. When inventory sits in your warehouse it ties up funds and raises your storage costs. This can inevitably lead to write-offs if you cannot move that inventory soon enough. Monitoring your inventory records accurately through software can help you avoid this mistake. You can look at the history of your orders to make informed purchasing decisions.

Create an Inventory Reserve

A helpful way for you to avoid inventory losses is to create an inventory reserve. It may not prevent your inventory items from losing their value but understanding historical selling data and current market conditions can help you make predictions about your inventory. This reserve will be accounted for as an expense on your income statement.

Utilize Write-Downs as Needed

The reason why companies in your industry are successful is that they have efficient inventory management. Implementing an inventory management system (IMS) can help you identify the root cause of slow-moving inventory and find ways to reduce excess and obsolete stock. Inventory management also helps you sell off excess and obsolete stock more effectively through the process of write-downs. By reducing the price of an item, you can still make a profit. But failing to find a way to utilize obsolete stock will lead to a write-off where the product is considered a loss to your company.

Revise the Order Cycle Regularly

Another option to prevent inventory write-offs is to simply order in smaller batches and cycles. Smaller and more frequent order quantities mean you store less inventory in your warehouse. As long as you have sufficient inventory to meet customer demand and prepare for peak seasons, you will be on the right track. However, before you can do this you must understand what your order frequency history is. You also need to consider if there will be any loss of transportation efficiencies if you reduce your batches, and how it will impact the labor workload at distribution centers. Once you determine your order frequency, these answers will present themselves, but you must have a thorough understanding of your supply chain costs and capabilities before switching to this strategy.

Some options for implementing this strategy include the following:

  • Reducing setup time and costs
  • Re-evaluating cost of holding inventory
  • Understanding warehouse storage procedures
  • Understanding cost trade-offs of labor, transportation, and inventory

Eliminate Obsolete Stock

Do you have stock sitting at the back of your warehouse taking up space in your facility? Is it being kept there because no customers want to purchase it or because your employees are uninterested in organizing it? If the stock has been taking up space in your warehouse for a long period of time you need to find a way to rid your warehouse of it. Finding a way to deal with these items will result in good long-term financial results. Some options include selling the items at a significant discount to your customers, offering it as an add-on when a customer purchases another product of yours, or taking the items back to your manufacturer for recycling or reworking the raw materials.

Choose Tenax for Inventory Management

Getting a better understanding of your products and how they move throughout the supply chain is vital to effectively running a retail company. Each item needs to be tracked and measured to see how customers respond to it and how high or low demand is. When items you hold lose their value, the write-offs will be deducted from your reserve, but you don’t want this to become a habit. With the help of a third-party logistics provider, you can have the professionals handle the time-consuming process of inventory management, so you can focus on building and fortifying relationships with your customers.

Real-time inventory management can help you keep better track of your orders, sales, and locations of your products at each of your warehouses. If you want to implement robust inventory management software, our 3PL company can help you. Tenaxx Logistics offers services such as real-time inventory management, e-commerce fulfillment, fulfillment solutions, and fulfillment markets. You can contact us by e-mail at info@tenaxtransport.com or by phone at 519-260-2738.

What is Dead Stock & How to Manage it?

Dead stock is a major concern if you are running an eCommerce shop. In this blog, you’ll learn the definition, causes, and how to avoid dead stock.

What is Dead Stock?

Inventory that doesn’t sell or remains in the warehouse is often referred to as dead stock. With businesses that don’t implement inventory management strategies on regular basis, dead stock can remain on warehouse shelves forgotten and useless. If you are constantly dealing with excess inventory, it could be a sign that you need to look after your inventory health to clear out your dead stock and prevent it from becoming a recurring problem.

How to Avoid Dead Stock

To avoid dead stock and its associated expense, consider doing the following:

  • Use inventory management software to monitor your stock timely and remove dead stock.
  • Do the market research before buying inventory and order smaller quantities initially to know how they perform, even if the price per unit cost is higher.
  • Survey customers to learn what other products they want.

What Causes Dead Stock?

There are several reasons why you may end up with excess inventory in your business. Here, we discuss the most common.

1. Ordering inconsistencies

Ordering inconsistencies arise when you order more than required stock at once, or when you order at the wrong time. This results in overstocking, which creates a high chance of ending up with dead inventory.

2. Poor sales

There are many reasons why you may grapple with poor sales in your online store. They include:

  • You are targeting the wrong market for your product
  • Selling obsolete products that are out of season, or out of trend. For example, trying to sell winter clothes in summer or Christmas.
  • Your products cost are high
  • Your competition is more appealing with great deals and offers.

Regardless of the reason, poor sales in your business may create a dead inventory on the shelves, and you need to rethink your marketing strategies to dispose of them as soon as possible.

3. Low quality or defective products

Selling low standard items or defective products that do not meet customer expectations can be a major reason behind your excess inventory. This will inevitably create dead stock in your warehouse.

What to do with Dead stock

There are several strategies you can use to dispose of your dead inventory and recoup some of the money. Here are some better ways to get rid of your dead stock and free space for new and more profitable opportunities, other than loading it in a garbage truck!

  1. Clearance sales: Target buyers by running clearance sales on your website at great discounts to clear out all the dead stock.
  2. Bundle and Sell it:  Group low-selling products with more current, top-selling items and offer the combination at a discounted price, lower than the cost of buying each item separately.
  3. Gift with purchase: Everyone likes free gifts! Start offering your dead stock as giveaways, incentives, or gifts with purchase is a great way to clear dead stock.
  4. Selling to closeout liquidators: Liquidators retailing are those companies that will buy your dead stock in bulk and resell it in their own shops, website, or online marketplaces such as eBay or Amazon, Flipkart at low prices.
  5. Return to your supplier: You can negotiate the price with your supplier to return the excess inventory. If they are unable to offer a full refund, negotiate with them to repurchase the inventory at a discounted price.
  6. Donate it: There are so many charities that are more than willing to receive your dead stock as a donation. Making a donation is a great way to build your brand’s corporate social responsibility (CSR). You will not only have given your excess stock to a worthy cause but also created a good impression of your brand.

Tenaxx Logistics Helps eCommerce Merchants Manage Inventory

Tenaxx is your partner when it comes to eCommerce inventory management. We provide 3PL, warehousing, and eCommerce order fulfillment services throughout Canada and the US to help you manage your inventory and order fulfillment process. Contact us to get a quick quote today.