Can a WMS help avoid dead stock?

Can a WMS help avoid dead stock?

07 June 2022

  • dead stock

 

Dead stock inventory is something that nearly all warehouses experience from time to time. Given that such a large part of an e-commerce or manufacturing business’ cash flow is tied up with inventory, having to store stock (or raw materials) that just don’t shift can be draining. It affects working capital and profit margins negatively. It means your business has less money available to purchase new stock, try new raw materials and innovate. It means less cash is on hand to invest in marketing and fulfilling your future growth potential. Now, with business costs rising so sharply due to geo-political issues and global inflation, cash flow maximisation by taking precautions to avoid dead stock is a very important strategy.

You may be wondering whether you have a problem with dead stock. Most businesses do at some level but it is most commonly found in warehouses that store seasonal items. For example, fashion clothing with distinct ‘collection seasons’ and also businesses that deal in household equipment, like gardening tools and furnishings.

Using Warehouse Management System (WMS) software can make a very significant difference when it comes to a) avoiding dead stock in the first place and b) if you do find you have this to manage, to minimising its impact on the bottom line. This article explains why dead stock inventory is such a fast-growing concern for some e-commerce companies and manufacturers, and also, how to avoid it using a WMS.

Why is dead inventory such a problem?

When inventory is classified as ‘dead’ it means it is un-sellable (or very hard to sell). It has almost no or very little commercial value compared with other inventory, but it still takes up the same space in the warehouse. Space is at a premium currently with warehousing costs now running so high, which means having a software system that can help identify locations where dead stock can be stored safely until sold or disposed of, is very useful. A WMS does this very efficiently, by helping to free up space. It allows around 30% more stock to be stored and easily located in a given area. It tells operators where there are odd places available to keep obsolete items, without it impacting on day to day pick and dispatch rates.

Apart from the negative financial impacts on cash flow and working capital, dead stock inventory can also make an e-commerce business experience higher service charges - especially if they are using a store front that charges a flat fee per SKU item listed. Adding to this potential problem is the impact that selling out of date, unfashionable items can have on brand image. Displaying a large clearance section full of looks from past seasons could create a negative reflection of your brand and simply not be worth it in the long run.

How can you minimise the problem of dead stock?

Implementing a perpetual inventory counting system which is offered as part of a WMS ensures that dead stock levels are minimised, without impacting on optimal safety stock quantities. It means being able to strike the perfect balance between having enough stock and not allowing levels to fall below set minimal levels, but also ensures that careful controls are in place to avoid slow moving items from piling up. Using a WMS means you will always have a well organised and accurate snapshot of your inventory count in real-time. Key functionality that helps to mitigate against dead stock includes having a real-time report of inventory across business and warehouse locations, accurate sales monitoring and forecasting, supplier management, and precise, automated reordering capabilities.

The ability to make informed decisions that are backed up by real-time data will make a massive contribution towards mitigating dead stock. It will help to produce more accurate sales and production forecasts based on detailed purchasing history and take things a stage further, by helping the business understand how much space is available to store inventory items.

At some point, almost every business will have to deal with dead stock, it is a cost of doing business in the e-commerce industry. Whilst megatrends are created on social media, there is always a downturn. Having the right tools in place to avoid over ordering or being caught out with a glut of last year’s colour schemes will go a long way to protecting your business. Using a WMS is a very good first step to take in this direction and will ensure you can make sound decisions, armed with accurate real-time information.

www.indigo.co.uk