What is Dead Stock? How Does It Affect Businesses & How to Get Rid of Dead Stock Lying in Warehouses in 2022?

August 10, 2022

The goal of the inventory is to be sold. However, unsold goods may accumulate over time and become “dead stock.” Dead stock is money that isn’t being used and may seriously affect a retailer’s bottom line.

High-profit margins must be maintained through offloading dead stock, but as eCommerce businesses grow, challenges with inventory optimization occur. Dead stock builds up over time due to a lack of inventory management methods and procedures.

A healthy firm typically has 15% dead stock (or less) in its active inventory. However, for direct-to-consumer (DTC) brands, that figure often rises to over 33%. This locks up cash and significantly raises operational costs.

This post will go through what causes dead stock, how to get rid of it, and how to keep earnings up. We’ll also discuss how to avoid dead stockpiles with proper inventory management.

Table Of Contents
  1. What is Dead Stock?
  2. How Does Dead Stock Affect Your Business?
  3. What Causes Dead Stock?
  4. How To Avoid Dead Stock?
  5. How To Get Rid Of Dead Stock in 9 Easy Ways?
  6. Conclusion
  7. Dead Stock Management With Inventory LogIQ
  8. Dead Stock: FAQs

What is Dead Stock?

Inventory that a business believes will be hard to sell is known as dead stock or dead inventory. Items that do not sell as well as anticipated are out of stock. Dead stock can also refer to faulty, out-of-date, out-of-season, or damaged products.

The most frequent types of dead stock are seasonal items that are no longer in demand. In some circumstances, they are unlikely to be sold before their expiration date and are wasted. In addition, they only occupy valuable warehouse space that might be utilized for goods that sell quickly as a consequence. Slow-moving inventory thus has some high hidden costs.

Types Of Dead Stocks

There are several types of dead stocks that a corporation may encounter. Each of them may be traced back to specific events and may necessitate a different method of dealing with them.

Outdated Inventory

Obsolete inventory is products that have not been utilized or sold in a long time owing to a lack of demand. In many respects, inventory may become outdated. For example, in the clothing and electronics sectors, new trends and models frequently replace old ones. When the holiday season is over, a firm may find an abundance of unsold holiday-themed products. A manufacturing corporation may employ other materials or components in a product, leaving the replacement items on the stockroom shelves to accumulate dust. Poor sales due to bad marketing may force a corporation to discontinue a product line entirely.

Damaged Products

Damaged goods are materials or items that have become useless due to irresponsible inventory handling, production errors, or horrible warehousing conditions. For example, a pallet with an imbalanced load may tumble off a forklift, the malfunctioning gear may render some materials worthless, or a leak may spoil a batch of items that must be kept dry.

Expired goods

The food business is the most vulnerable to product expiry. However, some industries, such as medicines and chemicals, require makers and distributors to keep track of expiration dates. Rigid restrictions in businesses that deal with expiring items necessitate organizations meticulously track the expiry dates of their inventory, which may be accomplished with tracking software.

Defective Products

Items that have not been explicitly damaged at your facility but are flawed in some way are considered defective products. These flaws can occasionally be traced back to the supplier, but they might also result from engineering or design flaws at your factory.

Unused Inventory

Inadequate inventory management techniques may result in items being stocked and forgotten. For example, if inventory is not adequately accounted for, a corporation may order more stock without realizing that useable products remain in the stockroom. Forgotten inventory is frequently still usable, although it can also become outdated in specific instances.

How Does Dead Stock Affect Your Business?

Dead stock costs money and depletes essential resources in your firm. This should be self-evident to you and your staff. Aside from replenishing your discount department, there is little benefit to keeping merchandise hanging around your store or warehouse (not a good thing).

Here’s a closer look at dead stock inventory’s three immediate adverse effects on your business.

Dead Stock Has a Multiplier Effect on Your Business Finances

Dead inventory strains your budget and additional resources exponentially. Not only do you lose the initial investment in the unsaleable goods, but you also lose the margin you were expecting to gain from selling them.

If finished goods remain on your shelves across your business, you’re also losing out on prospective sales of other products. This is less critical for online stores, but it might significantly impact your inventory, or the eCommerce platform charges you per SKU.

Having outdated, undesired, out-of-season things polluting your physical and online store is a poor reflection of your business. 

Dead Stock Limits Future Growth Prospects

From the previous point, slow-moving stock can be detrimental to future development prospects. We’ve demonstrated that it’s a drain on your already-thin margins and scarce resources. The harmful consequences extend not just into the present but also to the future.

Your investment in dead stock represents additional funds that could have been used to test another product, replenish a proven product, or increase your marketing efforts. Unfortunately, these wasted chances are keeping you from reaching your full potential.

Dead Stocks Takes Up Warehouse Space

Another critically limited resource that slow-moving stock influences are your warehouse or general inventory space. Dead stock incurs carrying expenses on top of eating into your valuable and limited space, whether you have proper storage, a vast closet at the rear of your business, or just your storeroom floor.

Depending on the nature of the items, the amount left over, and your warehouse storage plan, your slow-moving stock may necessitate additional insurance coverage.

These actual retail wastes of space can also accumulate over time and increase your labour costs. With little room and too much dead stock, retailers drive staff to get inventive to navigate inventory counts and order pulls correctly.

What Causes Dead Stock?

Understanding what causes dead stock to accumulate in the first place is essential for avoiding it. If you can find out what’s causing the dead stock to pile up, you’ll be in a better position to move it out and prevent it from piling up in the future. The following are some of the most common causes of dead stock.

Over Ordering

Ordering excess inventory without knowing how much you’ll sell at a particular time is the quickest way to accumulate dead stock and increase carrying expenses.

It might be challenging to determine how much inventory you will require to satisfy future demands. There is a delicate line between having too much and too little stock. Still, by devoting effort to setting up an inventory management system and tracking important distribution indicators such as turnover percentage, you may make better decisions regarding inventory replenishing, how much inventory to buy, and when to acquire it.

Another way businesses can reduce over-ordering is to purchase fewer items more frequently. For example, you may reduce the danger of gathering dead stock by purchasing inventory to meet a month’s need rather than a year’s demand.

Erroneous Demand Forecasting

Future demand is underestimated when the relevant data is not tracked. As a result, eCommerce firms are in the dark about which goods are popular and how quickly they will sell. Rather than acquiring slow-moving items that take up warehouse space and affect your bottom line, you may need better forecast demand by getting precise prior order data. Furthermore, if you have accurate inventory forecasting, you may decide how much inventory to purchase to meet future needs.

Ineffective Marketing and Sales Efforts

If you offer a high-demand product and your inventory isn’t moving as quickly as you’d like, it’s probably due to a lack of marketing and sales activity; this is a significant potential expense. Furthermore, poor communication between you and your sales and marketing teams on selling goods, incorrect product messaging, a poor online experience, and a lack of consumer comprehension can lead to high-demand products being unsold.

Inadequate Quality Control

Even though the inventory is brand new, it does not mean high quality. To maintain proper quality control, it is critical to establish a solid working relationship with a recognized manufacturer or supplier. This guarantees that adequate quality control standards are in place before acquiring other items.

How To Avoid Dead Stock?

Dead stock is an inescapable part of the retail industry, especially if you’ve been in business for a few years or more. A few additional Christmas items here and there aren’t going to bankrupt your company. However, you are harmed by big over-orders and under-sells.

There are several techniques for reducing this risk. There are also a few efficient methods for relocating unsaleable objects, such as just giving them away.

Strengthen Your Inventory Management System 

Inventory management software levels the playing field when preventing dead stock. Your inventory management system offers the same fundamental automated, measurable, and analytical features used by major retailers to avoid dead stock. The underlying inventory control technologies are the same, but the feature set and specialized employees are much different.

On-hand inventory throughout your business and warehouse sites, sales monitoring and forecasting, supplier management, and accurate, automated reordering capabilities are essential inventory management tools that assist reduce the risk of dead stock.

Aim Low, Miss Low

You may minimize dead stock by placing fewer orders with your suppliers or producing fewer products if you are in charge of manufacturing. This is particularly vital for those annoying seasonal things, and it’s also crucial if you want to test a new product on your clients.

Aim low and miss low by having a modest stock on hand in case the product fails or a small number of missed sales while you’re waiting to restock in case the product succeeds.

This tactic is priced because you’ll miss out on manufacturer savings for purchasing bulk. However, it’s a minor, temporary cost to bear to demonstrate the feasibility of a new product.

Examine Your Purchasing Procedures

Maintaining a minimal inventory is a specific strategy to guarantee that the risk of amassing finished goods is as low as possible. You can do this by introducing just-in-time inventory policies or placing more frequent orders for smaller volumes. Effective communication with your suppliers is crucial regardless of your approach.

Utilize Precise Forecasting

To maintain ideal inventory levels and prevent dead stock, distributors and make-to-stock manufacturers must do accurate forecasting. Forecasting gathers data from all organization sectors to identify demand patterns and provide information about when to purchase extra stock. Therefore, it is advised to employ software, such as an ERP/MRP system that gathers substantial volumes of data throughout your company to provide precise projections.

Examine Incoming Products

You have the opportunity to find any non-conformance early on by inspecting arriving products, at which point you may ask your suppliers for a refund or a replacement shipment. However, it is challenging to demonstrate to your suppliers that the issue was on their end if you do not discover that the supplies or goods are defective till they are on the factory floor or, worse yet, in the hands of a consumer.

Utilize Inventory Management Methods

Most inventory situations need tried-and-true inventory control procedures like ABC analysis, safety stock, reorder point, First-in-First-out, etc. These techniques allow you to manage your inventory operations by offering a clear framework for inventory management, replenishment, and consumption.

By classifying your inventory goods according to their consumption value or frequency, ABC analysis enables you to deploy resources or arrange your stockroom physically more effectively.

A mathematical method of keeping buffer stock is called safety stock. It gives you the ideal amounts of excess stock to keep on hand.

Calculating the inventory levels at which you should restock your products is called the reorder point. When an SKU’s quantity reaches the reorder point, it is time to order or make more. Reorder point and safety stock work well together.

First-in-First-out (FIFO) is a strategy for consuming inventories. You will drink stock lots in the order they were brought into inventory if you stick to it. This is an excellent method for managing goods that have an expiration date.

Utilize ERP/MRP Software to Organize Your Inventories

ERP/MRP systems with integrated buying modules and inventory management software have quickly become necessary in manufacturing and distribution companies. Companies that manage their inventories, process orders, plan production, schedule jobs, handle accounting, and other functions using spreadsheets or several isolated systems recognize that these antiquated systems and procedures impede their ability to expand. Instead, companies may design efficient communication methods, produce precise timetables, and quickly maintain their inventory using a single piece of software for everything, including expiration date tracking.

Spend on Marketing

You run the danger of poor demand for your items when you are not visible to your target market, which increases the likelihood that your inventory may go out of stock. While word-of-mouth advertising is excellent for gaining customers, employing other media to spread the word may considerably boost sales, enhance inventory turnover, and improve cash flow. The secret is to be visible where your target audience congregates, such as gatherings, print and online periodicals, internet forums, social media platforms, etc.

How To Get Rid Of Dead Stock in 9 Easy Ways?

There are various strategies to save the situation if you find yourself in a dead stock position where inventory occupies an excessive amount of space in your warehouse and badly impacts your balance sheet. Also one can sell the dead stock in order to get rid of dead stock and free the spaces in the warehouse.

Offer Customers a Free Gift

When you offer products, increasing the order value by giving customers a free present encourages them to buy from you. As an alternative, you might please customers by surprising them with a gift. This will improve the customer experience and increase the likelihood that they will make another purchase from you.

This may be an excellent marketing strategy, whether you use surprise elements or gifts with purchase promotions. It provides an additional incentive to purchase, which should ultimately increase your conversion rates.

Recent research indicated that shoppers preferred “freebies” over “discounted merchandise,” which shows how useful this may be. For example, customers chose the “33% free” offer over the one that offered a 33% reduction off the usual cost of a particular brand.

Combine Products

Like free presents, you may utilize product bundles to boost an order’s perceived value. Multiple things are bundled together and sold at a discounted rate. These are often goods with a common theme. The combined cost is frequently less than what a customer would have to pay if they had bought each item separately. Offering complimentary gift wrapping or a bag or container, such as a cosmetics bag, to put products in can also increase the perceived value of a transaction.

Pair surplus products with best-selling items to employ product bundling to remove dead inventory. Even if you don’t profit from these things, they will no longer take up valuable storage space.

Promotional Sales

You might hold a sales event advertising all of your finished goods on the website and making sure it’s accessible in your physical and mortar shop locations to shift finished products swiftly. Please make sure you use email wherever feasible to inform them about the offers.

Even while you won’t necessarily raise your profit margins by doing this, you will create some cash flow and free up space on those shelves so you may stock them with more lucrative products.

Start modestly when discounting, such as with a 20% discount, and increase the values if it doesn’t work. Customers might feel a sense of urgency from flash deals, but make sure it has a significant impact. This will help you sell off different products and expand your clientele.

Send Goods Back to The Provider

This is a simple solution to the problem of deadstock. To discover if you may return any dead merchandise, contact a supplier. They might not fully reimburse you for the consignment inventory, but they could agree to repurchase specific inventory at a reduced cost. While not ideal, at least you may somewhat mitigate your losses in this situation.

Remember that you’ll likely have to pay both postage and a restocking charge, and it’s doubtful you’ll be reimbursed for the shipping fees you previously paid.

In addition, a vendor could give you credit rather than a cash return. In this situation, you must determine if a supplier or quality fault is to blame for the deadstock. It seems logical to resolve this right away. Make a case for returning it if they offered you a product that wasn’t appropriate for your market. Your providers should work to maintain your satisfaction since they want to keep you as a client.

If you have only had the stock for a short period—say, let’s a month as opposed to a year—you have a better opportunity to improve the situation. But, first, verify that the products are in brand-new packaging and are not damaged.

Dead Stock Donations

Growing numbers of customers consider a brand’s corporate social responsibility (CSR) when determining whether or not to buy from them. Research supports this, showing that 52% of customers think producers are responsible for the planet’s future.

According to a recent Mintel research, three-quarters of American consumers are influenced by a company’s philanthropic giving activities.

People feel as if they are helping their community when they participate in charitable endeavours, and they also help a company’s reputation. In addition, giving away finished goods enhances consumer perception of your business and qualifies as a tax deduction when you file your accounting.

Given how simple it is to donate brand-new clothing, fashion stores have a solid chance to give dead stock to charities. Finding a charity to work with and donating the extra merchandise to their worthwhile cause are the only two steps required. Always follow the correct documentation requirements, and if you need assistance navigating the tax write-off procedures, contact a registered tax professional.

Look For Collaboration Possibilities

Any connections you may already have with other brick-and-mortar stores or e-commerce enterprises might be helpful regarding dead stock. Discuss the most significant applications for a dead stock item with them.

Relationships may take many various forms, so be aware of that. For instance, you may try to collaborate with another retailer to develop a co-branded product package. Or plan a jointly funded “garage sale.”

Sell Products on Online Stores

Although it will take some effort on your part, selling extra stuff on Amazon, eBay, and Etsy might be a wise option. If you haven’t already, you’ll need to take product photos, create product pages with descriptions and SKUs, and upload your products. Make sure to read the instructions before registering because each marketplace has its restrictions.

Resell Your Products

Unsold inventory may not always be a result of the product itself. Instead, it could have something to do with how the products were positioned or advertised. Updating products with fresh merchandising and marketing initiatives might be worthwhile in this situation. When you have a physical presence, one method to achieve this is in-store.

It can be enough to move some things about or rearrange the shelf to give them a new life. Items may be made more aesthetically pleasing and offer a better shopping experience for customers by installing fresh, bright signage and changing worn-out price tags.

Rephotographing items for the website is another option, and if you run a blog, you could write a post outlining the product’s benefits. The reward might be worthwhile even if it requires additional time or resources.

Consider Liquidation

You can choose to liquidate your surplus inventory by offering it to businesses that buy only dead stock products. It’s doubtful that you will make money this way as these firms are known to “cherry-pick” products and offer to buy your stuff for a significant discount. Nevertheless, at least you’ll be giving the company more room and money.

Conclusion

Several things, including shifting consumer expectations, ineffective inventory management, and straightforward spoilage, can result in dead stock. On your warehouse shelves, though, the product lines are accumulating dust. As a result, the most potent businesses put forth a lot of effort to keep dead stock to a minimum.

Several tactics may be used to reduce the danger of dead stock. Two include enhancing inventory control and paying greater attention to consumer expectations. However, if you come across lines that are moving glacially slowly, act right away. Dead stock can be eliminated by giving it as presents, donating it to a good cause, or selling it for less than it is worth.

Dead Stock Management With Inventory LogIQ

By regularly monitoring and controlling inventory levels to ensure you have just enough inventory to satisfy demand, InventoryLogIQ helps avoid reduce dead stock.

By monitoring usage and demand, and automatically determining the best time to restock inventory goods, advanced inventory management software at Inventory LogIQ may enhance forecasting skills—this aids businesses in avoiding retaining surplus inventory that can remain on shelves permanently. In addition, leading software solutions enable organizations to track things through their complete life cycles to identify product quality concerns and facilitate inventory management across different locations.

It can be challenging for firms of any size to avoid dead stock. For various reasons, including uneven ordering patterns, economic downturns, and quality related issues, businesses may end up with dead stock. However, strict product-quality standards, keeping track of client demand, and inventory management software can help firms reduce the danger of dead stock with Inventory LogIQ.

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Suggested Read: What is Stranded Inventory?

Dead Stock: FAQs

Supercharge your fulfilment with InventoryLogIQ now, contact our team.

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The accuracy of revenue, wages, and inventories is so crucial. Creating a Precise Budget Inventory counts are also used by businesses to assess how much has been sold and how much stock is still available. When determining which things are the most popular, this might give helpful information regarding the inventory turnover rate or how frequently the item sells. As a result, this can assist businesses in developing a precise inventory budget. They may choose which items and how many of each to have on hand. To prepare for the upcoming year's purchases, a retail business can, for instance, do an inventory count on seasonal items. 6 Main Types of Physical Inventory Count Methods The main types of physical inventory counting procedures include: Point-of-Sale or Electronic Counting Electronic counting scans and tracks goods digitally using specialized computer tracking software. For instance, many businesses utilize point-of-sale (POS) systems, which enable staff to scan things as consumers buy them. The application automatically subtracts the quantity from the inventory as soon as the buyer purchases the item, and the team monitors it through the POS system. The warehouse receiver adds new products to the system when the shop gets them using the same technology to increase stock. POS systems frequently communicate with other types of software, such as enterprise resource planning, accounting, or merchandising software. The firm employees may, for instance, conduct a physical inventory count to ensure that the physical and digital numbers match. Although this technology helps to increase inventory accuracy, the associated fees might raise a company's costs. Employees have time to become familiar with the system and appropriately carry out the operations. Manually Counting  Unlike automated counting, manual inventory counting involves staff members writing down the inventory results on paper. The management of a corporation can assign workers as necessary or have a dedicated employee or team perform physical inventory counts. To count, they can go about the shop, warehouse, or storage area to identify the things and add up the amounts using a spreadsheet or printout of the products. By using this technique, a business might avoid paying for the initial expenditures of building an electronic system. It is also helpful in confirming POS system findings. It's crucial to remember that human inventory counting might produce a range of results based on the size of the business, the accuracy, and the care taken by the counters. Periodic Counting Periodic Counting or Cycle counting is a method of physical inventory counting in small increments over the course of a month or year. For instance, to assure accurate data, a retail shop would tally the most popular produce items each Monday morning. Fourth Tuesdays, the specialized section receives a similar treatment, and so on. The corporation will gain from this in a number of ways. First of all, it enables the business to continue operating rather than shutting down to finish an entire physical inventory count. Additionally, since inventory is constantly counted and faults can be found promptly, it enables any inconsistencies to be resolved sooner. This is advantageous for quickly transporting goods or products that the business wishes to monitor. Many companies choose to perform a complete inventory count once a year and the regular cycle counts. Complete Physical Counting Companies frequently do a comprehensive physical inventory once a year. Organizations can utilize their own workers to count, engage temporary help, or pay an inventory counting agency to complete this task. Many organizations arrange shelves, storerooms, and warehouses before finishing a complete inventory to make sure that goods are located correctly and are simple to find. Depending on how things go at the firm, the business may temporarily close or stay open on inventory day. Counters can be given inventory lists or spreadsheets by managers, along with instructions on how to record the number of things sold accurately. At the conclusion of physical inventory counting, all counters give in their sheets to the supervisors, who then compile the findings. Spot Counting Spot counting, arbitrary counting or ad-hoc counting is a type of physical inventory counting method that is frequently started by the user and is not planned, making it useful in unusual circumstances. Let's say you counted a zone, but a few days later, the system malfunctioned because of someone or some procedure. Instead of waiting for the next cycle count, you can construct a new, empty order and begin adding counted items to it. Of course, your system must be able to compare the quantity that was tallied to the data stored in the program. Arbitrary counting is sometimes referred to as blind counting since it typically takes place in unplanned, tiny store/warehouse zones or locations. Tag Counting The personnel of the store or warehouse should physically tag each item prior to tag counting. The worker must complete the required slots on the tag with the item ID, counted amount, and other pertinent information during physical inventory counting. Some labels have two sides, allowing an additional worker to check the data and, if necessary, fill in the adjustment on the second side. These tags are gathered and added to the system as journals when the counting procedure is complete. The primary distinction between tag counting and all other counting techniques is that tag counting does not involve a direct comparison to system data. As opposed to just producing a counting order and comparing it to the tag counting list, it is more like creating a rough draught list of your goods and quantities, refining it (e.g., updating with sales that have occurred during the counting), and then comparing it to the final list. How to Conduct a Physical Inventory Count in 12 Easy Steps A successful retail business is built on effective inventory management. Customers will always find what they're looking for in a well-stocked backroom, and your workers will always have what they need to do their jobs. In the best-case scenario, organized stock supports your everyday operations so that personnel may concentrate on customers. At worst, you're left with a logistical nightmare of missing items and lost sales. Your staff will need to count meticulously, track, and process products on a regular basis to keep your inventory operating correctly. Are they driven to complete the assignment as inventory season approaches, or would they prefer to skulk off? The given steps for counting physical inventory can help you manage stress if you run a retail firm. Let's take a look: Check the Date It can be a big deal if you have to manually count your physical inventory every month, every three months, or at the conclusion of a reporting period. It may be necessary to take stock outside of regular business hours because it is a laborious operation. Give your team plenty of warning so they can plan accordingly around their commitments, and be sure to schedule workers correctly, so nobody takes on an opening shift. Post a sign in your store or on your social media accounts informing clients if you need to close your store during regular business hours. The secret is to plan. Assign Your Counters Physical inventory counting needs expertise. Before you allocate your counters, make the position a learning opportunity for both inexperienced and experienced workers by letting them train one another and providing checks and balances along the way. Make a written protocol and include information on how you'll establish a precise cut-off point for stock movement for an accurate count. Count teams typically consist of two individuals - one who counts and the other who records. To make sure that everyone will be accessible on the specified day and time, provide your team with their schedules as far in advance as you can. Notify All Storage Facilities Make sure to inform relevant third parties that they should likewise undertake a physical count of inventory on the given date, whether your organization has merchandise in outside storage or on consignment. To ensure that they are not counted, make careful to separate any recently acquired products. Deliveries to the warehouse should be delayed if at all feasible to prevent variations from occurring during the count. Before starting the count, you'll want everything to be free of clutter. Examine Your Stock A few days ahead of time, check your inventory to make sure everything is in order. Search for objects with missing or partial component numbers and those that are in a state that might complicate the procedure. Adjust your inventory as needed to make it ready for the physical count. Make a Proper Warehouse Plan Make sure your staff has a map of your floor, backroom, and storage so they know where to go when they need to. A map can let you allocate personnel to their stations more efficiently, whether you need to take photographs or sketch up a plan. Create a tracking sheet for each sector and assign a different number to each display, rack, and shelf. Visualizing your inventory area will reduce confusion and make it easier for your personnel to get started. Make Your Own Category You may count and group comparable objects together with the aid of categories. The categories for a retail setting may be footwear, tops, bottoms, outerwear, and accessories. Depending on your industry, these groups can be further divided based on color or gender. The counting procedure will be more smoothly executed if a systematic system is created. You'll run into certain things that don't have a designated spot in your store when you're arranging your physical count. It would be best if you made a decision on how to handle objects without a clear home. They can be transferred or returned from other places. Start the Pre-Count Make sure everything is tagged correctly and labeled before the count starts. After all the things have been tallied, failure to deal with stray objects can lead to problems and anger. Start early by counting some of the items. Put the objects that were counted in sealed boxes when the pre-count is done. The goods will need to be recounted if, on the day of the physical count, you discover broken seals on packets that have already been counted. Set Frequent Reminders Give your staff a review of what they learned in training before the big day. Walk your staff around the shop if you've relocated any stations or merchandise to prevent confusion. Distribute instructions that break down the counting procedure into simple stages. Despite the fact that there shouldn't be any things without labels or pricing, emphasize the significance of gathering such items in a specific location so they may be handled last. Explain the Procedure Lead by example and demonstrate to your staff the correct way to do a physical inventory count. Give them a sample of a completed form, then have them go over their initial try to ensure the form was filled out correctly. Assign the count teams to various areas of the shop using the map. To prevent double-counting, mark the regions on the map that have been counted. Get Set and Go Counting You may pair off your teams and start physical inventory counting now. The second person completes the count tag using the sample data below after the first person has finished counting: LocationItem informationportion numberQuantityMeasurement unit The team attaches the original count tag to the inventory item, keeps a copy, and turns the tags into the person in charge. The person in charge will verify that all titles have been completed entirely and none are missing. Recheck Your Possessions Perform spot checks in sections to see whether the items were appropriately counted. Take advantage of the chance to verify each section doubly if this stock audit finds a mistake. It will be worthwhile to double-check the counts that have previously been made. To assure the correctness of the inputs, a data entry team should additionally include two members. Complete the Reporting To add up your computations, record your physical inventory counts on a spreadsheet. Your inventory reports will enable you to find any discrepancies between the physical and book counts so that you can develop a strategy to eliminate them. To find potential patterns, compile physical count inventory records over a specified time period. Is there, for instance, a particular low-count spot in your store? Are there any procedures you might strengthen to prevent the loss of goods? Your business should be impacted by your reports and results in all areas, from financing to visual merchandising. 5 Benefits of Physical Stock Counting in 2023 To maintain accurate and up-to-date inventory records, physical inventory counts are a crucial component. Better sales and purchase estimates may be made thanks to correct inventory records, which also guarantee that you always have the proper quantity of stock on hand. Your consumers will benefit from having a physical inventory taken. Precise physical inventory counts are essential for the reasons listed below: Provides an Accurate Insight Into Inventory Levels  You will have a far better knowledge of how much merchandise you will need to have on hand to satisfy consumer needs when you effectively manage your inventory. You won't have to worry about running out of supplies all the time, thanks to this. By being aware of your inventory levels, you may prevent clients from making orders for items that are not currently in stock. Without having to worry about keeping too many goods on hand, shortages will be less of an issue. Improves Demand Predictions An essential component of inventory management is demand forecasting. It occurs when you foresee a product's level of demand, the rate at which it will sell out, and the time at which that SKU has to be restocked. A physical inventory check can enhance buying and forecasting of inventories. For example, retailers that see demand forecasting reports that suggest which products to replenish based on their profitability and restock rate can do so in a way that allows them to do so based on both the popularity and profitability of the items. Suggested Read: What is Inventory Forecasting? Enhances Sell-Through Rate of Slow-Moving Inventory An actual inventory count does more than avoid stockouts. Retailers also reduce the chance of keeping out-of-date stock at the total price for an extended period of time. Retailers should have access to inventory grading data that group items according to their cost per unit, selling price, number of sold units, and overall income over time. Merchants should proactively think about re-merchandising items in-store, advertising them to generate interest, or offering a special discount to encourage sales for those that aren't selling as intended. In order to recover your initial investment and create a place for more in-demand goods that either sell at a larger volume, have better profit, or both, it is helpful to move through failing inventory. Reduces Inventory Shrinkage Inventory loss is a frequent and annoying issue for merchants. When your actual stock is less than the amount listed in your inventory management software, this occurs. Theft by employees and shoplifting are the two main reasons for stock shrinkage. A weekly partial inventory count, for instance, can assist retailers in identifying discrepancies between a store's actual inventory and the inventory levels recorded in its point-of-sale system with a smaller sample size of inventory that is easier to count (one particular product category, for example), giving them enough time to determine what caused the shrinkage and reconcile it. Prevents Overstocking and Understocking  Lack of physical inventory tracking can lead to carrying too much (or not enough) goods, which could lead to budgetary concerns if not maintained under control. Overstocking, often known as the gap between available inventory and demand, has resulted in markdowns totaling more than $300 billion. Discounting at scale leads to lost income because of lower-than-expected margins on each transaction, despite the fact that it has valuable use cases. You can allocate enough money to inventory to satisfy demand without overstocking or understocking by maintaining an accurate inventory ledger and using the information from your POS system to understand better how well-liked the products you carry are with customers. 7 Best Practices to Implement for Counting Physical Stock in 2023 Make a Map of Your Shop, Warehouse or Stockroom Source Make a map of the locations where your inventory is kept, whether it be on your shop floor, in a stockroom, or in a warehouse, as part of your preparations. Label each product category's location and the person in charge of counting it on the map. This will aid store employees in getting their bearings and assist the manager you assigned to maintain track of who is in charge of what. Give each employee a list of the SKUs they will count in their assigned region as well. This may be a helpful tool when they scan product barcodes and enter their count into the POS system. Use Box and Shelf Labels Source Label shelves and boxes according to the things they hold and make sure the contents of each are located where they should be according to a map of your store. The shop map you made in the previous step should be reflected in these labels. Prior to the inventory count, it will be easier to stay organized and save time when it comes time to account for the miscellaneous things if boxes and shelves are proactively labeled and products are placed in their proper locations. Clean the Locations Where You are Counting Source Make sure there is enough space for employees to count large quantities of items in each location designated for stock-taking. Get rid of any boxes or inventory items that are unnecessary. Any freestanding furniture, such as mannequins or display cases, should be moved to one side. Use Barcode Readers Source While it is possible to hand count the objects, teams are more prone to make mistakes. For quicker and more accurate counting, choose barcode scanners. Store employees scan the barcode on the product's tag, and the inventory levels connected with that product's SKU are automatically entered into the POS system as opposed to each product having to be manually counted and recorded in a spreadsheet or on paper. Mis-counts are unlikely unless the store employee scans the exact same item twice. Barcode scanners are necessary for teams charged with counting enormous volumes of merchandise. Set a Time When Counting Will Be Handy Source Setting a deadline for your inventory count is worthwhile. Depending on how many things you carry, performing a physical count can take one business a whole day and another just a few. In either case, giving oneself too much time is preferable to not enough. Additionally, some retailers choose to conduct nighttime inventory counts, appointing a team of staff to enter the premises during off-hours. Just bear in mind that in many areas, paying employees more for midnight labor than for a shift during regular business hours is the norm. Train and Inform Staff Members Source Before beginning a comprehensive physical inventory count, take the time to teach and instruct your store personnel on how to perform it. To count inventory and record outcomes, every member of your team should be able to operate a barcode scanner and your POS system. Spend some time outlining the typical difficulties they may encounter. What happens if a tag is missing, a product is defective, or a label is mislabeled? To ensure that staff members know what to do in each instance, share the solution and the procedure you've put in place. Utilize Technology for Physical Inventory Count Source Pen and paper counting takes more time than electronic counting. It's simple to make a mistake when counting, leading to erroneous inventory data. Additionally, a physical stock count across many retail locations will generate more data that will require much more time to process and understand than if everything were recorded using inventory management software. Inventor management technology provides solutions to these issues. Inventory reconciliation is sped up, and merchants have a single source of truth for both their financials and inventory when they scan products since the point-of-sale system will automatically register inventory levels for that SKU. Suggested Read: Supply Chain Forecasting Conclusion: Improve Your Physical Inventory Counts With InventoryLogIQ In conclusion, it is crucial to perform routine physical inventory counts even if you have an inventory management system in case-specific procedures are not operating as effectively as they should. Inventory counts assist you in reducing unexpected shortages and identifying which internal processes need to be changed to enhance your business operations as a whole. One of the top providers of inventory and data-collecting services is InventoryLogIQ. We offer physical inventory counting, merchandise planning and space optimization services to the majority of large retailers across the nation using our custom OMS and professional team. The integrated, one-handed inventory count terminal and warehouse management solutions are the technological advancements from which InventoryLogIQ continues to hold an excellent reputation in the market. This will not only handle your complete inventory but also make doing an inventory count simple by offering a section just for counting your inventory and notifying you right away if there are any shortages or exceeding stock. Physical Stock: FAQs Why is the physical inventory count performed?The Inventory account balance is updated to reflect the actual amount of accessible inventory using the physical count. To ascertain whether there have been any theft, loss, damage, or inaccuracies in inventory, a physical count is performed. How frequently should physical inventory counts take place?At the very least once a year, a physical inventory count should be done, however more regular inspections might be helpful. You may ensure that your inventory and your records match by frequently verifying your stock. Additionally, you'll be able to see any issues with your record-keeping practices. How is physical inventory managed?Wireless inventory scanners make it simple to scan a product wherever it is stored using barcodes to distinguish between each SKU type. You can simply monitor things by SKU, know how much is in stock, and identify every SKU in a warehouse by adding a barcode to your product tags or packaging.

March 24, 2023
Perpetual Inventory System Guide: Definition, Methods, Factors Considered, Benefits & How is Perpetual Inventory Different From Periodic Inventory Systems in 2023

Perpetual Inventory System Guide: Definition, Methods, Factors Considered, Benefits & How is Perpetual Inventory Different From Periodic Inventory Systems in 2023

For any sustainable and successful business, a sound inventory system is required to track goods throughout the supply chain cycle. From purchasing raw materials to producing the goods and, finally, selling the product, proper inventory management is key. It’s an effective system that keeps records of purchased materials, sales inventory and also stock-on-hand details of your business entity. The fundamental structure of inventory management includes inventory purchase (ready-to-sell goods that are procured and delivered to the point of sale or warehouse), storage of inventory (inventory that is stored until needed) and goods and materials that are at different stages of the fulfillment network. There are two types of inventory, as stated below:  Periodic Inventory Perpetual Inventory  While both these accounting methods are similar (businesses use them to track the number of products, stock availability, etc.), they have several inherent differences. What is a Perpetual Inventory System? A perpetual inventory system allows businesses to keep a real-time account or stock of inventory on hand. The widespread usage of computers and technology has made this system very effective. Businesses worldwide have found that this system is highly user-friendly and has fostered the ease of conducting various processes, eliminating redundancies and complexities of the traditional inventory system. Barcodes, Radio Frequency Identification Scanners (RFID) and point of sales systems supported by perpetual inventory systems quickly input inventory information of all business transactions on a real-time basis. Perpetual Inventory Systems are popular in modern business. They are often found in large businesses across multiple industries, such as jewelers, electronic stores and global enterprises such as restaurant chains, clothing stores, etc. Perpetual inventory systems track the details of product sales instantly through point-of-sale systems (PoS). However, perpetual inventory does not keep track of physical stock/products. Inventory reports can be accessed online at any time, making it easier to manage inventory levels and the cash needed to purchase additional inventory. Updates are automatically created when you receive or sell inventory. Your inventory accounts immediately reflect data about purchases, return of goods and stock data. 6 Main Differences Between Perpetual Inventory and Periodic Inventory Systems A perpetual inventory system constantly updates the purchase and sales records constantly, which provides a real-time reflection into what is staying or leaving the warehouse. A periodic inventory system only records updates to inventory and costs of sales at scheduled times throughout the year, not on a constant basis. While a perpetual inventory system can record and monitor the movement of the stock non-stop, a periodic inventory system can update inventory records at intervals, which happens after the stock is physically accounted for. The 6 main differences are listed in the table below: [table id=1 /] Advantages of Perpetual Inventory There are multiple advantages of perpetual inventory, which gives companies the ability to operate more effectively. They are listed below: Provides Updates in Real-Time Perpetual inventory maintains live records of inventory as soon as it is bought or obtained by the company. This enables the retailer to always be aware of when stocks are running low, which items are popular, when items were bought etc., so they can plan accordingly and be ahead of the curve. Manages Inventory in Multiple Warehouses Gone are the days when companies had to maintain multiple spreadsheets or files and manually add and remove items from the list. Perpetual inventory systems consolidate all your inventory records which is stored across multiple warehouses in one place. This will help make processes more efficient and will surely mitigate any errors or delays. Keeps Users Informed Through Forecasting Using perpetual inventory, retailers have a better idea of their customers' purchasing patterns based on the inventory sold. They will have a better idea of which products are in demand, during which season and which price point is doing the best. They will also get an idea of which products aren’t doing well and are just accumulating space in the warehouse. This understanding will help the business forecast demand and supply in the future. Suggested Read: What is Inventory Forecasting? Assists in Accounting Procedures Inventory is a key aspect of every accounting process as it gauges the value of the assets that firms have on hand. Since perpetual inventory systems constantly track and provide updates on inventory levels, it becomes much easier and faster to access this information. Disadvantages of Perpetual Inventory Can be Expensive Perpetual inventory is generally regarded as not being a pocket-friendly solution because of all the technology and software that is needed to enable it. Adding new inventory lists can also be chargeable, in addition to needing to train employees on how to use them. Overall, it may not be the best option for small businesses that do not need to calculate inventory for multiple different warehouses. Does Not Consider Expired and Mishandled Goods  Since perpetual inventory systems utilize data from sales and purchases to maintain records of inventory, it sometimes leaves out items that have been purchased but may have expired or have broken due to mishandling. Since manual counts are not performed, the management will continue to count those items unless someone has physically noticed the incident. This opens the door for unwanted errors and discrepancies in the inventory count. 5 Operations of a Perpetual Inventory System Point-of-Sale System A point-of-sale or point-of-purchase in a perpetual inventory system is the place where the customer walks up to your checkout counter after they pick up a product or service at a store or business entity. A point-of-sale is the combination of hardware units and software applications that enable your business to make those sales to customers. Cost of Goods Sold Updates Cost of goods sold (COGS) refers to the direct costs of the production of goods sold by a company. This includes the cost of the materials procured and labor hired to create the goods. Indirect expenses like distribution costs and sales force costs are excluded in COGS. Reorder Point Automation A reorder point system alerts you about when to place an order, so you won't run out of stock and tells you when to place a requisition to replenish your stocks. The reorder automation point automatically calculates your stock based on supply chain forecasting that is based on past consumption data (historical data) to forecast future requirements. Purchase Order Automation Purchase Order Automation Systems streamline your purchase orders to increase efficiency by tallying with the corresponding invoice and requisition purchase requests automatically. Warehouse Management Software Typically, any warehouse management system (WMS) is designed to monitor the entire inventory in hand. It can also manage supply chain operations right from the manufacturing or distribution center and can coordinate with different parts of the supply chain to get tasks done. 6 Things to Consider Before Choosing An Inventory System Requirements Source You first need to assess your requirements and make a decision based on that. A small business would require a very different inventory management system than a multinational company. You would need to be aware of how much inventory you would need to manage, the nature of the inventory, the value of the items, etc. Expenses Source Because of the fact that certain inventory management systems are so dependent on technology, such as the perpetual inventory system, prices can easily skyrocket, which would be pointless if you don’t need all those features in the first place. Choose a system that fits your budget so that you can invest in other facets of your business. Configuration Options Source If your business deals with multiple types of inventory, scattered across different warehouses, it would be important to make a note of the customizability of the system so that you can get the most out of it. It would not be of any help if you are not able to manage your inventory as efficiently as possible due to constraints in your inventory management software. Ease of Use Source It is important for businesses, especially smaller ones, to factor in ease of use when they are opting for an inventory management system. If the system is too complicated and requires a sharp learning curve, it could take days for your employees to get accustomed to it. Choose a system that has all the features you are looking for but that is also well-designed and user-friendly. Integration Ability Source Inventory is the key component of any eCommerce business. It pays off to have an inventory management system that can play nice with other software tools and systems involved in other business activities. There shouldn’t be a bottleneck in any section of the business and you can do your best to make sure your inventory management system can integrate well with other applications. Flexibility Source Flexibility is a very important factor to consider while choosing an inventory management system since it’ll be handling such a key aspect of your business. You need to find out things like if it is compatible with devices of all screen sizes, what software platform it uses and if it can integrate with other systems. Once you understand this, it’ll make your decision much easier. Support Source After-sales support is a key factor when choosing an inventory management system, especially if you have shelled out a decent amount. You would want to have access to facilities such as tutorials and customer support in case something goes wrong and you need some assistance. Companies that care about their customers even after the sale is made often provide the best services. The 3 Main Methods of a Perpetual Inventory System FIFO Perpetual Inventory Method FIFO is a cost flow tracking system under which the first unit of inventory acquired is considered to be the first unit consumed or sold. The perpetual FIFO inventory method determines the cost of your oldest inventory and multiplies that cost by the total amount of inventory sold. LIFO Perpetual Inventory Method This method is a cost flow assumption that businesses use to evaluate their stocks wherein the last items placed in inventory are the first items sold. To Summarise, the last costs available at the time of the sale are the first to be removed from the Inventory account and debited to the Cost of Goods Sold account. Weight Averaging Cost Perpetual Inventory Method The weighted average cost method is a means of tracking inventory that assigns a cost to each unit based on the average cost of all units that are available for sale during a specified time period. The weighted average cost per unit is arrived at by adding the total cost of all units available for sale divided by the total number of units available. Perpetual Inventory Benefits for eCommerce Businesses in 2023 Shortens the Time Needed for Accounting Procedures During the preparation of financial books, usually at the end of the year, the value of the closing stock needs to be known. With a perpetual inventory system, this information is always on-hand as it reflects any changes to the inventory in real-time, which helps to speed up accounting procedures. Requires Less Investment in Materials Since perpetual inventory systems keep track of every purchase and sale of inventory, whether it is raw materials, finished goods or work-in-progress inventory or products, businesses can get a clear idea of the what amounts they are spending on what materials and it can help them optimize the quantities that are needed and thus, reduce inventory costs. Helps in Restocking A business will be able to know if inventory of a certain product is running low and will be able to reorder items before it runs out completely. This aids in the continuous fulfillment of customer orders and keeps the business running smoothly and effectively. Optimizes the Use of Resources Since perpetual inventory gives us a clear idea of what the expenses and incomes of the business are and where they are entering and exiting from, the business can optimize every process that involves working capital, whether it is labor working on a particular task, the purchase of materials, the transport of goods, etc. Helps Provide a Clear Picture Perpetual inventory systems update inventory levels in real-time. This means that you will always have an idea of which products are doing well and which aren’t. In addition, you’ll get access to more granular data such as seasonal demand for products, what causes spikes and dips in demand and much more. Conclusion: How InventoryLogIQ Can Help You Monitor Your Perpetual Inventory A perpetual inventory system provides more accurate information because ongoing recording and prompt verification of inventory are done. Perpetual inventory also enables financial statements to be prepared quickly and accurately. A Perpetual inventory system is best suited for big enterprises, while a periodic inventory system is suitable for small businesses. Perpetual inventory is the preferred method for tracking inventory with accurate results on an ongoing basis. If you need help with acquiring a perpetual inventory system for your business and any other inventory-related requirements, InventoryLogIQ can be a good option for you. InventoryLogIQ has a custom OMS that aids in providing real-time updates of your inventory levels across multiple warehouses. In addition, our platform can integrate with most big eCommerce marketplaces to ensure that all your inventory management and order fulfillment happens in one centralized location. We also give you deep insights into the inner workings of your inventory and order-related data so that you can plan ahead. Perpetual Inventory System: FAQs What is a perpetual inventory system?It is a program designed to estimate your inventory without any disruptions. A perpetual inventory system relies on electronic records rather than physical ones. It generally starts from the baseline with a physical count and details get updated as and when purchases are made and shipments come inward or move outwards. Why is it important to have a perpetual inventory system?A perpetual inventory system instantly tracks sales and inventory levels for individual items, which helps to prevent stock-outs. Perpetual inventory systems monitor the availability of stock at all times and alerts you whenever a product is out of stock or is getting depleted. Why is a perpetual inventory system most suited for eCommerce businesses?With a high degree of record accuracy, inventory reordering can be conducted with confidence and it ensures stable delivery timelines for your customers. The perpetual inventory system tracks every inventory transaction in real-time; the resulting inventory records are highly accurate and reliable. This may improve customer satisfaction and bolster sales. It also gives business owners a more accurate understanding of customer preferences and centralizes the inventory management system for multiple locations.  What are the advantages of the perpetual inventory system over the periodic inventory system? A Perpetual inventory system captures and tracks updates to inventory and costs of sales throughout the year. A perpetual inventory system is designed to update and record the inventory account automatically whenever a sale or purchase takes place. Each sale or purchase that happens immediately upon sale or purchase is recognized. A periodic inventory system updates the inventory account at certain scheduled times or at the end of an operating cycle. The update and recognition could occur at the end of the month, quarter or year. There is a gap between the sale or purchase of inventory and when the inventory activity is recognized. A faster inventory system enables companies to react faster to the supply and demand of the market.  What kind of business is ideally suited for a perpetual inventory system?Typically a large enterprise with large amounts of inventory, sales volumes and multiple retail outlets need perpetual inventory systems. The scope for marginal errors with the periodic system is higher when compared to the perpetual system because it is based on a physical counting system. Many leading eCommerce enterprises use a perpetual inventory system for tracking stocks at their stores and warehouses such as Amazon, Walmart, Marks & Spencer and others.

March 23, 2023