Most organizations are continually buying new products. Unfortunately, part of the quantity of many of these items is “D.O.A.” or dead on arrival. That is, you do not sell the entire initial purchase quantity. For example, you might buy a case of 48 pieces of an item. You sell a total of 20 pieces. And the remaining 28 pieces gather dust on your warehouse for several years before being thrown out.
We’ve conducted research as to why new products die on our clients’ shelves. It is not surprising that if one person, on his or her own, makes the decision to buy a product “on a whim”, dead stock is often the result.
To minimize the risk of dead stock, buyers should insist that a new product questionnaire be filled out whenever someone wants to introduce a new product to your customers. The following questions should be answered in writing:
- Who is requesting the item be stocked? Is it a customer or salesperson? Have their previous suggestions for stocking new products resulted in success or dead inventory?
- What are estimates of sales or usage for each of the first six months after the product is introduced? We will compare these estimates to actual sales at the end of each month.
- How will this new item affect the sales or use of existing products? If a new product will take half the sales away from a currently stocked item, be sure to tell the appropriate buyer to reduce his/her purchases of the existing product. Also, ask your sales staff whether it is absolutely necessary to stock both items. You face enough competition in the marketplace without having two of your stocked items competing for the same sale!
- Do you have adequate room to store the new item? Warehouse and store walls are not elastic. The warehouse or inventory manager must confirm there is adequate storage space for the new item before you commit to buy it!
- If the item doesn’t sell, how easily can we liquidate the remaining stock? Can you return any unsold portion of the initial purchase quantity after it has been in your warehouse for six to nine months? Can you liquidate any left-over inventory and at least recover your cost of the material? If not, perhaps you should think twice about ordering a larger quantity that probably won’t be sold in a very short period of time.
Have a committee of sales, purchasing and operations management review the completed questionnaires. We have found that if three or more members of this committee agree that it is a good idea to add the new item onto your approved stock list, you chance of ending up with “D.O.A.” inventory is very small.
Be sure to monitor the usage of new items. If sales in a month are less than 75% of the forecast, ask the person who requested the product be stocked for an explanation. Question if you should take some action to increase sales or reduce stock.
Remember, unless you are in the antiques business your inventory will probably not appreciate with age!