Supply Chain Network For Selling Dead Stock For Small Businesses
Mar 05, 2023 | Shivphool Singh and Konark Ogra
What is Dead Stock?
The term “dead stock” refers to inventory that is no longer selling, or selling so slowly that it is at risk of obsolescence, or reaching the end of its product life cycle, rendering it unable to be sold. Inventory obsolescence occurs considerably more often owing to contemporary technology's drastic shortening of product life cycles and the competitive market, which forces businesses to move even more quickly to sell these slower-moving goods.
The Issue of Deadstock in 2021
Due to unprecedented amounts of products being imported into the US as a result of the post-pandemic sales boom, warehouses adjacent to the ports are at maximum inventory capacity as the second pandemic Christmas season approaches. The projected 4.5% warehouse vacancy rate makes it difficult for small and medium-sized businesses (SMBs) to obtain enough space and reasonable storage rates in warehouses near ports.
Premium storage prices have climbed by 5.59% due to the existing supply chain's limited capacity and the eCommerce market's explosive expansion. According to a Warehousing Cost and Pricing Survey, 61% of warehouse operators anticipate raising their rates in 2021. According to estimates, dead inventory costs the retail sector alone close to $50 billion annually.
Supply Chain Network for selling Dead Stock
The optimum management of dead stock can be done by utilizing a comprehensive supply chain network. The whole process of network development can be managed as
1-Dead Stock Problem Recognition
In this step, the main idea is to identify potential dead stocks in the warehouse to prevent slow-moving stocks from becoming non-moving stocks, thereby significantly reducing the eventuality of potential dead stocks from turning into dead stocks.
This process of inventory categorization of slow-moving and Non-moving (Dead Stock) can be standardized using “FSN inventory management”.
FSN Inventory Management
The fast-moving, slow-moving, and non-moving inventory control method is classifying the goods/products based on their consumption rate, quantity, and the rate at which the inventory is used. The FSN analysis is based on the following parameters mentioned below:
The consumption rate of a product: The average quantity of an item consumed or expended during a given time interval.
The average stay in inventory: Reflects how long a specific product took to get sold in a given period.
Period of analysis: Define when you are conducting the analysis, in a year, 6 months, etc.
2- Root Cause Analysis
At every level starting from enterprises, warehouses, or retail shops, It is important to figure out the causes responsible for dead stockpiles’ contribution. The common causes can be divided into two parts-
Over Ordering- Ordering excess inventory without understanding the accurate demand pattern in a given period is the quickest way to accumulate dead stock and thus increase carrying costs.
Inaccurate demand Forecasting- Miscalculating future demand patterns due to a lack of adequate data or data analysis system results in the creation of either excess stock or a situation of stock deficit.
Poor Marketing Efforts- Poor communication on product technical, product messaging that misses the mark, poor web experience, and low customer awareness can all lead to products being left unsold.
Defective Products- The lack of adequate quality control in manufacturing units or assembly units causes maximum loss in terms of the creation of dead stock which is very difficult to liquidate.
External Demand Variation- A sudden demand variation in greater effect caused by the implementation of government rules and regulations or factors or cyclicity leads to the ineffective working of forecasting methodology.
Change in customer interest- Sometimes the fads effect created in the marketplace is wrongly judged by the enterprises as a trend and thus it creates a change in customer preferential interest in a short period.
3- Development of Alternatives
It includes how the dead stock can be managed efficiently and thus minimize the negative effect on business. The alternative strategies can be summed up into two parts active approach and a proactive approach.
1- Active Approach
This approach includes the development of a supply chain that can manage the dead stock. The development approach should be based on the logical relation of the three main components of any supply chain. The three main components are objective, low maintenance, and cost management.
Dead stock management supply chain should be more inclined towards efficiency as compared to responsive.
The suggested supply chain should tackle the efficient flow of material, money, and Information.
The cost of inventory vs Information cost management is the major controlling factor.
Comparative Performance of design options for supply chain Network
1- Cost Comparision
2-Comparison based on customer characteristics
Based on the cost comparison and customer characteristics, It can be concluded that manufacturer storage with direct shipping is one of the best suitable supply chains for managing dead stock movement.
In this type of design, only the cost of transportation and Information management are concerning factors. These two costs can be managed with added technology.
Transportation cost management- It can be controlled using the “3PL logistics and Co-Connect” concept. The basis of this is the transportation is managed by 3rd party and it is collectively for different no of the manufacturer which will lead to cost optimization.
All e-commerce entities utilize the concept of 3pl and co-connect logistics to reduce their last-mile delivery cost.
Information Cost Management - The cost of managing information in the CHM industry is the most critical as it is challenging to find the customer for overdated products. This can be controlled by managing a “virtual Information center with the concept of finding your next customer” which have a 2-sided network. All the producers of the CHM industry can put the specific details irrespective of the type of products and the customer can take their call based on their requirements.
A similar concept is utilized by “Next load- https://www.nextload.com/”.
2- Pro-active Approach
This approach is based on the adoption of no. of technical approaches proactively so that it can prevent the pilling of dead stock beforehand.
1- Discounting or Offering Promotion
One of the most straightforward strategies to deal with excess and aging inventory in the short term is to offer a promotional discount. This sales tactic, while not as profitable, can help recover the production cost of the product and frees up available storage space to optimize your inventory for more profitable merchandise.
Pricing Strategy - The CHM manufacturer can adopt a comparative pricing strategy to liquidate the slow-moving and dead stock. The pricing model is based on a trade-off between inventory holding cost vs opportunity cost.
Pricing model link- Attached Document
2- Strategic Warehousing
Demand forecasting helps to predict future sales to make better decisions on how much inventory to purchase, as well as future warehousing, needs when to run a flash sale, and creating an effective pricing strategy.
ShipBob is a tech-enabled 3PL. It uses proprietary software at a basic price across the fulfillment network for a cohesive experience. Using this Orders are automatically sent to our warehouses, where inventory is picked, packed, and shipped to your customers. The tools can be easily integrated with Shopify, BigCommerce, Amazon, and Walmart to optimize time and cost while fulfilling customer expectations.
With ShipBob’s network of fulfillment centers, the organization strategically splits your inventory across our locations to get your products from point A to point B more quickly, affordably, and economically.
With order management software for direct-to-consumer and wholesale shipments, It is easy to manage subscriptions, make changes to orders post-purchase, map the store’s shipping options to ShipBob, and automatically share tracking information with customers.
The ShipBob technical tools empower merchants to manage their inventory. It’s easy to view the status of inventory and quantity on hand across locations at any point in time, identify slow-moving inventory with high storage costs, and gain insights into the performance of units sold over time by channel.
ShipBob’s free analytics tool is packed with charts to help you with everything from year-end reporting, to better supply chain decision-making.
Zoho Inventory tool is a complete inventory control system that can be utilized by small business entities at a very reasonable price.
Centralized Inventory- Update inventory quantities across all selling channels (marketplace) automatically whenever a sale has been made. There's no margin for error as it can be fully integrated with all marketplace models.
Product Listing- This helps in keeping inventory organized with vital details like prices, cost, availability, and SKUs. Customized variants of an item based on attributes can be organized in a defined way.
Item Kitting- The tool features help in bundling a group of items together to sell as a single unit. Zoho Inventory updates individual items and components as products are put together and sold.
Automatic Re-ordering- The Zoho inventory tool helps in setting re-order points, reminders, and preferred vendors for products to avoid untimely stock-outs.
Batch and expiry date tracking- It helps track different batches of items and monitor their entry dates so that, the slow-moving stocks can be given top priority.
3- Right Forecasting
Forecasting models are one of the many tools businesses use to predict outcomes regarding sales, supply and demand, consumer behavior, and more. These models are especially beneficial in the field of sales and marketing.
Various forecasting models can be applied based on situational requirements. The chosen model must include the following things-
1- use of available data source
2- It must consider the stage of the product’s life cycle for which it is making the forecast.
3- Model accuracy vs inherent cost trade-off i.e purpose of forecasting
4- a combination of qualitative, time series, and casual models for forecasting
Holt Winter Model of Forecasting
Holt-Winters model includes three aspects of the time series: a typical value (average), a slope (trend) over time, and a cyclical repeating pattern (seasonality).
This method uses exponential smoothing to encode lots of values from the past and use them to predict “typical” values for the present and future. Three smoothing indexes are used in this model called triple exponential smoothing.
Forecasting Model- Attached Document
4- Green Initiatives
Consumers are increasingly looking at a brand’s corporate social responsibility (CSR) when they’re deciding whether to purchase from them or not. As per research data, with 52% of consumers believe the future of the planet is the responsibility of manufacturers.
Charitable initiatives give people the feeling they’re supporting their community and also work to support a brand’s image.
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