Dead stock.
Two little words can have such a big impact for wholesale distributors.
Over the past couple of years, the term has been used more and more by third-party vendors in their pitches, as wholesale distributors have started taking a closer look at their dead stock.
“Yeah, we have it, but it’s not that much.”
It’s a typical answer from wholesale distributors when the topic is brought up. But the thing is – dead stock is typically a bigger problem than distributors want to admit or are aware of.
What Thrive Technologies has found is that wholesale distributors estimate that their dead stock is around 8-10%. But after running their actual data, it turns out it’s closer to 20-25%, on average, when you measure it at the branch level.
No, really.
That millions of dollars' worth of inventory that is costing wholesale distributors.
But how can that be?
Well, we’ll tell you, but before we do, we should define what dead stock is so that we are all on the same page.
Dead stock is typically defined as inventory that has had zero sales over the last 12 months. What Thrive Technologies discovered after analyzing the data of more than a hundred of wholesale distributors is that a staggering 90% of dead stock came from items that sell less than 10 times a year.
You might refer to them as C and D items. You might refer to them as low-selling SKUs. Whatever you call them – they are costing you.
It’s these low-selling SKUs that make up the vast majority of dead stock for wholesale distributors because whether it doesn’t sell at all (dead stock) or it sells a handful of times per year (85% of wholesaler’s items sell 10 or fewer times per year), it’s not able to be properly managed by multi-location wholesale distributors within their ERP purchasing system.
While it’s slightly more manageable to manage your dead stock when you only have one location and not hundreds of thousands of SKUs to manage across multiple locations, the truth is that dead stock has an impact on wholesale distributors of all sizes and all locations.
And it’s not the buyer’s fault. It’s not the purchasing manager’s fault. Wholesalers stock tens of thousands of low selling SKUs but since they only contribute to 20% of revenues, buyers naturally focus on the A and B items and simply don’t have the time to review all of the low selling items.
It’s not even the fault of the ERP system – at least, not intentionally.
ERP systems use a forecast-based approach, and given the math that ERP systems use, they aren’t able to accurately forecast items that only sell 2-3 times per year.
So if there’s a software company that is saying that they are reducing dead stock, ask to see how, because if they are relying on forecasting these low selling SKU’s they aren’t actually able to reduce dead stock – just call it out.
But by using AI technology, you’re not just able to reduce dead stock, but you’re able to prevent it, too. Technology such as Thrive’s Thermostock®, an AI ERP optimizer, connects to an existing ERP system and automatically identifies and optimizes low-volume SKUs, allowing buyers to focus on the forecastable A and B items.
Thermostock continuously learns and improves to provide ongoing optimal inventory recommendations even as sales fluctuate, as customers have seen their dead stock decrease by 78.5% using the product.
Before now, dead stock wasn’t able to be effectively managed, and it was just accepted as being part of the cost of doing business. But it turns out that cost was having a big impact on wholesale distributors, costing them millions of dollars.
Finding out how much dead stock you actually have is the first step to not just reducing it, but preventing it moving forward. With Thrive’s unique AI inventory optimization platform which is implemented in a few days, reducing dead stock has now become a great opportunity for painless margin improvement.