Liquidating Unwanted Inventory

By Jon and Matt Schreibfeder

Most companies’ warehouses are filled with two things: “stock” and “stuff”.  Stock is what you need to achieve the goal of effective inventory management.  That is, to meet or exceed customers’ expectations of product availability while maximizing net profits.  Stuff is everything else.  Stuff is a non-productive investment and is taking up valuable space in your warehouse and doing nothing to promote the success of your organization.  Don’t get emotionally attached to the stuff in your warehouse.  Unless you run a pet store, it doesn’t have feelings and won’t cry if you get rid of it.

  • Begin by identifying your “excess” inventory. This not only includes your “dead stock” (i.e., products that have experienced no usage in the past 12 months), but also quantities of products far above what you will sell or use in the foreseeable future.
  • A good idea is to start by identifying where you have more than a 12-month supply of an item:
  • remove new stock items (those introduced within the previous six months),
  • identify items where the current available quantity (On-Hand – Committed on Outgoing Orders) is greater than the total quantity sold over the previous 12 months. This is a warehouse’s Excess Stock List.
  • Sort this list in descending order based on the value of available excess inventory [(Available Quantity – 12 Mo Usage) * Unit Cost)]. The items at the top will have the highest excess inventory value.  These are the items you want to examine first.

Your excess inventory or “stuff” can be divided into four categories:

Misplaced Material:  This is inventory that can be sold or used somewhere else in your organization.  It is usually a good idea to transfer misplaced material to where it is needed rather than buying more from a vendor.  In addition to excess inventory, consider any part of the available quantity of a product above the maximum stock level, or the sum of the reorder point and standard quantity you order from a supplier, accessible to replenish stock in other stocking warehouses within your company.  This practice will both increase inventory turnover and lead to better customer service.

“Blue-Chip” Stuff:  Though you have no use for this inventory, other organizations can sell or use it.  These are often name brand products or items made of expensive materials.  Maybe you had to buy a case of 48 pieces of a product but only needed five pieces.  Another company probably would want to buy the few pieces they need from you rather than buying a full case from the vendor.  On-line marketplaces are a great source for liquidating this stock.  Search on the words “surplus”, “inventory”, and the name of the vendor or product line.

“Sorry” Stuff:  Products that have little value to anyone else.  Often the best thing you can do with sorry stuff is to sell it for scrap.  But always check to see if a charitable organization can put it to good use.

“Month Old Meatloaf”:  Not only does this material have no value, but you may also incur a cost when you dispose of it.  Expired hazardous material is a good example of this stuff.

With the exception of the “Blue-Chip” Stuff, you won’t make much money liquidating your unwanted stock.  But you will free up space in your warehouse.  Remember, you probably don’t sell fine wines or antiques.  Your inventory will not appreciate with age!  Adopting our replenishment techniques will help prevent stuff from accumulating in your warehouse in the future.  But first, we have to clean up what accumulated as the result of past decisions.