Issue link: https://www.e-digitaleditions.com/i/655792
40 FEDA News & Views One of the most common struggles all distributors face is managing their dead and obsolete inventory. It's one of those back-burner items that no one wants to bring up for fear that they will be appointed to deal with the task. Most people like to employ the ostrich approach to dead stock—just stick our head in the sand and hope it goes away. One of the more novel approaches I've ever heard of took a little help from Mother Nature. This clever individual had a facility right next to a river that flooded seasonally. He had built this large deck overlooking the river in order to entertain customers and employees dur- ing the summer months. On a particu- larly wet year, they received word that the river was going to flood much higher than usual. When life gives you lemons, make lemonade. The distributor hauled all the dead inventory out to the deck. He sandbagged the walls of the facility, in order to protect his turn and earn inventory, and let the rising river manage his dead stock for him. Something tells me that Allstate would take issue with this approach. A number of years ago, my former business partner Scott Stratman wrote an article in which he stated, "Wouldn't it be great if dead stock could just stink?" As inventory managers, we have a very difficult time identifying the moment in time when a product ceases to be part of our turn and earn inventory. Our lives would be infinitely easier if we could enter the warehouse on the first day of the month and a pungent odor, some- thing akin to dead fish, would tickle our nostrils. We would be forced to hunt down the offending item and eliminate it from the premises. Unfortunately, most of our products do not emit an odor when they parish. Our challenge is to use our software to make them stink. When I speak to distributor groups, I usually pose the question, "If I wanted to find the dead stock in your building, I would ask for one piece of equip- ment. What would it be?" Several folks mention the white glove and a dust mask. Perhaps, but I have a feeling that a majority of our live products would not stand up to white-glove scrutiny. I would ask for a ladder or forklift. I'm not sure where we picked this up, but we tend to move all the dead stock a little closer to heaven. It could just be the old out of sight, out of mind. In many facili- ties, there is no discernible separation between the dead and the living. Both occupy the same shelf space. In order to help us identify our dead inventory, we must define the moment of death. We have seen some unusual methods for defining the point in which an item is classified as dead. The rainbow method comes to mind. During an annu- al physical inventory, many distributors use colored dots to mark the items that have been counted. When a product dis- plays stickers from all colors of the rain- bow, it is most certainly dead. I would not suggest that this is the most effective definition. In our practice, we suggest that distributors choose a moment in time. When was the product last sold? The most common definition for dead stock is zero sales in the past 12 months. There are several distributors out there that need a much shorter window. The paper goods industry uses a three- month window. For most hard goods distributors, 12 months is a good place to start. Over time, a distributor can begin to decrease the months. I generally suggest that companies exercise caution when going below nine months due to seasonality issues. Once a definition has been created, everyone in the company must know it. This is not a time to be secretive. When I work with a private company, it is a big red flag when I get several different answers as to the time of death. When the Software Should Take Over Once we have defined the time of product death, we need to let our soft- ware make it stand out. As I mentioned before, most dead items do not appear or smell any different than our living products. Enter the Inventory Obituary. Some folks who use the "no sales in 12 months" definition refer to this as the "13th month first day report." Not nearly as colorful but not all of us are moti- vated by style points. The report can be formatted in a simple spreadsheet using these columns: 1. Item Code 2. Description 1: This will help us pull the item out of the live inven- tory. 3. Quantity On Hand 4. Unit Cost 5. Total Investment: This is the moti- vational column. 6. Date of Last Sale: Exclude anything sold within the last 12 months. The Inventory Obituary How Using Your Software to Identify Dead Stock Can Yield Tremendous Bottom Line Results By Jason Bader Principal, The Distribution Team continued on page 44