How does dead inventory cost money?

Hello Team,

Dead inventory or dead stock is made of products that were pulled from store shelves because they became outdated or were never sold. While some companies find ways to sell some dead inventory in a secondary market, holding and managing obsolete stock has several costs.

 

A common dead inventory cost is simply missed sales opportunities. If your shopfloor guys pull 100 units of a product with a $10 price point from shelves, you theoretically lose out on $1000 in revenue. In some cases, companies can sell pulled stock to off-price resellers to collect some revenue. However, this usually won't cover the full prices missed in the market or the costs to initially acquire the goods. Perished items, such as food or medicines, are often thrown out. When outdated inventory is left on shelves for too long, you also miss opportunities for potential sales and profit on newer goods.

Regards,

 

Saiyid

1.     A dead inventory is of no use to the organization. But it could be useful to someone in the market and has some resale value. So, dead inventory should be sold out quickly to get some money back and invested in productive purposes.

2.     A dead inventory occupies some space in the warehouse and also may incur some handling cost. The space rent is costing money to the organization.

So, a dead inventory is to be disposed of quickly to get some cash inflow and reinvestment thereof profitably and to save the space rent otherwise, you would be continuously loosing money.

 

 

Thanks for the invite I agree with the answer Mr.

saiyid

Dead inventory or dead stock is made of products that were pulled from store shelves because they became outdated or were never sold. While some companies find ways to sell some dead inventory in a secondary market, holding and managing obsolete stock has several costs.

Opportunity Costs

A common dead inventory cost is simply missed sales opportunities. If you pull 50 units of a product with a $10 price point from shelves, you theoretically lose out on $500 in revenue. In some cases, companies can sell pulled stock to off-price resellers to collect some revenue. However, this usually won't cover the full prices missed in the market or the costs to initially acquire the goods. Perished items, such as food or medicines, are often thrown out. When outdated inventory is left on shelves for too long, you also miss opportunities for potential sales and profit on newer goods.

Employee Wages

Businesses must also pay the employees who pull outdated or unsold inventory from shelves. With smaller product runs and displays, the time investment may be minimal. However, large displays or runs, especially in multiple store locations, can require hundreds or thousands of dollars in wages for the time involved in pulling products. Time is also spent organizing the products in storage and loading them up on trucks when inventory is hauled away.

Distribution Costs

Inventory that is not thrown out must be stored somewhere and often moved by the seller. A retailer, for instance, normally pulls products from shelves and them ships it its own distribution center, to a third-party warehouse or directly to a buyer. Regardless of the approach, costs are usually incurred for the movement and storage. When transporting the goods for sale to off-price buyers, for instance, you have gas and transportation costs. When storing dead inventory, you pay labor and utilities on the storage space.

Finance and Insurance

In resell businesses, carrying excessive inventory may lead to higher finance fees and insurance premiums. Companies often buy goods on account from suppliers. The longer you hold dead stock without liquidating it or clearing it out for fresh goods, the more interest you accrue on the debt obligation. Resellers also commonly pay insurance premiums based on the value of inventory held in stores. If you store excess inventory, your premiums may increase.

By Not Burying them. Simply costs, direct or indirect, keeps accumulate as long the dead products have not been gotten red-off

even if by just thinking of it, a productive time would be lost.

direct costs, such as storage, warehousing, controlling, monitoring, accounting for, management, are continuous costs that would affect the end profit of an entity due to such dead products.

other, legal responsibility costs, would arise due to dead products , such as in the medical and food channeling businesses.

So, Just Bury them..

I agree with the answer Mr.

saiyid & Md. Fazlur Rahman

The cost of management and conservation of the stockOpportunity costs and lostLack of liquidity and scarcityDamage or lossThe cost of insurance

1. Hidden cost of overheads
2. hidden cost of an off place
3. hidden cost of safety and damage can took place
4. Unexpected errors from being used to see error of dead inventory (you may lose team focus and alertness to wrong issues)

Agree with expert answer given by Mr. Saiyid Maududi . Thank you 

 

I agree with Mr. Saeed answers

Dead inventory cost money in many ways. It occupies space, which cost rent or money. It cost labour, time and effort. Better to adjust this stock as soon as possible.