Dead Stock: Enemy or Opportunity? Unmasking the Truth About Unsold Inventory
When discussing inventory analysis, it's only a matter of time before the concept of Dead Stock arises. Usually, this expression creates an unpleasant feeling for the person responsible for making sure that the material or part of the business is optimally utilized and that the money used to purchase the inventory is not wasted. It's not an inviting term: Dead Stock … But what is it really?
Dead Stock in SAP is identified as the least amount of stock over a certain evaluation period. For example, if you analyze the previous six months and the quantity drops to 100 units at one point; then 100 units constitute the Dead Stock. It's worth noting that the Safety Stock is a part of the dead stock figure. Usually, the two are the same; however, it's possible to improve either the safety stock or dead stock, and even both. Suppose the average inventory is 300 units in that same period, then the Dead Stock would be 33.33% of the average inventory, and SAP can give us this information in units, dollars, or percentages.
The amount of Dead Stock you have could be higher than you expect. If we don't monitor our Dead Stock as frequently as we should, it will be simple to see the figure increase. Thus, it is essential to keep tabs on the prospect of managing the cash that is stuck in inventory.
Beyond the Label: Exploring the Reasons for Dead Stock
We can have a variety of explanations for why we keep an abundance of stock on hand. These can range from extra safety precautions, customer needs, difficulty in reducing lot sizes, and shifts in demand. A typical justification is that a shortage occurred in the past and it triggered such a negative reaction that we promised to never let it happen again. Even if the reasoning is different, the main issue is how to slowly diminish these numbers since unsold stock does not move.
I recently ran across someone who didn't approve of the name "Dead Stock". Instead, they suggested "Dusty Stock" to emphasize that although excess inventory isn't beneficial, the goods could still be used. I found this idea appealing, and it reminded me of the phrase "don't let the dust bunnies take over".
Below are three activities you can begin immediately to begin intensifying your attention on Dead Stock:
- If you do not use this measure as part of your suite of inventory KPIs, incorporate this KPI into your inventory system, you can start using the SAP applications and reports.
- To make it easier, start to work it down in bite-sized chunks by examining the top 10 materials in one location. This will help you identify your problem areas and predict the duration of dead stock.
- Take a look at the planning parameters, look for opportunities to re-evaluate safety stock, reorder points, MOQ/Rounding Values, and Lot Size keys. How are those Lead Times looking vs performance?
From Deadweight to Throughput: Strategies for Inventory Optimization
As manufacturers you can often end up with excess inventory due to cost performance, efficiency or to keep production going. Throughput is how we measure the movement of units in the facility, but according to Dr. Goldratt, it is not just about how much is produced, but how much is moved through the supply chain and eventually purchased by customers.
Dead Stock is nothing but opportunity. With some critical thinking and a slow but steady approach, we can begin bringing this number down and moving inventory through your facilities before the material expires or gets dusty!
