Slow-moving and dead stock: what the count reveals

During a count, a dusty lot of fabric turns up on the top shelves, a sofa model from two collections ago in a corner, and ceramic pallets that have never been opened. In the records all of it stands as "stock on hand" at its current value. Dead stock ties up both space and capital, and it is often noticed only at the latest count. This article shows how to classify it by age and report it accurately to management.

Slow-moving or dead?

These are two different questions. Slow-moving stock is an item that does move, but whose quantity on hand will last a long time. Dead stock is an item that has seen no issue for a given period. Measure slowness by the coverage period: stock on hand ÷ average monthly issues. For example, 200 metres in stock and 10 metres issued a month last 200 ÷ 10 = 20 months. Dead stock is recognised from the item's last movement date.

The ageing table

Each item is placed in an age group by its last issue date: 0-90 days, 91-180 days, 181-365 days and more than 365 days. An illustrative stock, total 500,000 USD:

• 0-90 days: 315,000 USD, 63 per cent;
• 91-180 days: 90,000 USD, 18 per cent;
• 181-365 days: 60,000 USD, 12 per cent;
• older than 365 days: 35,000 USD, 7 per cent.

315,000 + 90,000 + 60,000 + 35,000 = 500,000 USD; 63 + 18 + 12 + 7 = 100. Stock older than six months is 60,000 + 35,000 = 95,000 USD, which is 19 per cent of the total (95,000 ÷ 500,000). The sentence management needs to see is: "About one fifth of the stock has seen no movement for more than six months."

The big items inside an age group matter as much as the group total. Suppose the 35,000 USD older than 365 days sits in three items: 20,000 + 9,000 + 6,000 = 35,000. The first item alone is 57 per cent of that group (20,000 ÷ 35,000), so the decision should start with it. For seasonal goods, read age against the season calendar: winter fabric may look dead in mid-summer without being a problem.

Why did it stand still?

At the count, ask why at the rack. Common answers are:

• the model or collection has ended;
• the set is incomplete, so it cannot be sold;
• the shade or calibre does not match, so customers do not want it;
• too much was ordered in the first place;
• it is in the records but is not really sellable (damaged, harmed by damp);
• it is recorded under the wrong code, so the sales team cannot see it.

Each cause calls for a different solution, so write the cause in the table too.

Decision options

Depending on the item, the options are:

1. a promotion or discount;
2. a bundle with another product;
3. sale by part or by weight;
4. return or exchange with the supplier;
5. finding the missing part and completing the product;
6. disposal or scrap.

The sales and purchasing leads take the decision; the warehouse only prepares the list. A discount that takes the price below cost needs management approval. Waiting has a price too: if the monthly space cost is, hypothetically, 5 USD per pallet and dead stock occupies 40 pallets, that is 40 × 5 = 200 USD a month, or 200 × 12 = 2,400 USD a year just for space.

How to report it to management

Show dead stock in a section separate from the variance table. It is not a difference between the count and the records; it is stock that agrees with the records but whose value is open to question. The report should contain the age group, value, cause and proposed decision. The decision to set aside a provision for write-down belongs to management and accounting. Purely to show the arithmetic: if a provision were set aside for 50 per cent of the 35,000 USD older than 365 days, it would be 35,000 × 0.50 = 17,500 USD (the rate is an example).

In short

Dead stock is the quietest finding of a count, yet its value is often larger than any variance line. In a StockSystem count, lot, colour and shade are written as separate lines, so old lots and items that have stood in place for a long time stand out in the variance table; the decision on how to dispose of the stock stays with management.