COVID-19 Newsletter #10
Assess Viability of New Products Before They Enter Your Warehouse
By Jon Schreibfeder

New products are continually being introduced to the marketplace.  Unfortunately, many of these new items are “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. 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, your organization should require that a new product questionnaire be filled out whenever someone wants to introduce a new product to your customers.  The questions that need to be answered include:

  1. Who is going to buy the product?  What customer or type of customer will find this product attractive?  If the product will appeal to your current customer base, you have less risk stocking the item than if you are going to use the product to try to penetrate a new market.
  2.  Why are they going to buy the product from us?  If they will buy the new product from your company because you can offer it at a lower cost, you should raise a cautionary flag.  What is the possibility that a competitor could undercut your price?  If you are offering the product as a service to your existing customers or to compliment what you already sell, you have less risk of ending up with dead stock.
  3. What are estimates of sales or usage for each of the first six months after the product is introduced?  How much thought and effort was exerted in developing these forecasts? How accurate has this source of information been in previous forecasts?  Note that “best practices” for new products includes comparing actual sales to these estimates at the end of each month.
  4. How will this 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 your buyers to reduce their 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 several of your stocked items compete for the same sale!
  5. Can we test market the item?  It is dangerous to buy a large quantity of a new item (despite any large discount offered by the vendor) before seeing whether it will be accepted and purchased by your customers.   Can you buy a small quantity (maybe at a higher cost or from another source) and “see if it will fly”?
  6. Do you have adequate room to store the new item?  Warehouse and store walls are not elastic.  Be sure you know you have space to stock a new item before you commit to buy it!
  7. 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 months?  Can you liquidate this 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 you feel can be sold in a very short period of time.

Have a committee of sales, purchasing and operations management review the answers to these questions.  We have found that if three or more committee members 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.

Remember that most of you are not selling fine wines or antiques.  Your inventory will not appreciate with age.