Most producers, distributors, brands or retailers are faced with excess stock throughout their business. These goods, commonly referred to as "unsold stock", "dead stock" or "dormant stock", can lead to heavy losses for companies, particularly if they have no solutions for disposing of these unwanted products, such as the major brands and chains which frequently use the services of large-scale destockers and private sales sites. Dead stock can sometimes be intentional, linked to strategy and positioning, or, as in the case of most large companies, SMEs and VSEs, simply not foreseen or anticipated. The COVID-19 crisis has highlighted the problem of dormant stocks, with many companies finding themselves with entire collections and ranges unsold and soon out of date. In this article, we attempt to list the main causes of unsold stock.
Sales forecasts
For the majority of industrial players with a logistics management model based on push flow (on stock), the process is the same before each product launch. The company makes demand forecasts based on historical sales figures and market trends, so as to be able to draw up the famous Sales and Operations Plan (SOP) which will orchestrate the entire supply, production and distribution chain. Thus, if sales forecasts are overestimated, dead stock will be generated throughout the chain. Conversely, if demand forecasts are underestimated, stock-outs will occur. Pre-order and pull-flow models remedy this problem, as it is no longer forecasts that dictate the various logistics stages, but orders directly, which thus create the net requirements.
Regulatory developments
In some countries, certain products or materials may be banned from sale by decree. So, depending on the country and state you're in, you'll need to find a solution to either sell the products before the decree comes into force, or relocate your stock and change your target to sell in a country where sales would be authorized.
Supply chain malfunctions
Logistical and transport problems can occur at any point in the supply chain, which can result, for example, in missing the start of a season, or exceeding the sell-by date (SBD). Every day, thousands of carriers find themselves with millions of tonnes of goods that they can no longer deliver because they have been rejected. Most of these products are then resold to specialist retailers.
Order errors
It's not uncommon to make mistakes when placing orders, either through a lack of rigor or a lack of understanding with the supplier. So be sure to reread your contracts and requisitions carefully before approving them.
Customer feedback
In the distribution sector and in the retail trade (physical or online), numerous returns or exchanges are made every day by consumers. In the ready-to-wear sector in France, return rates can be as high as 20%, which obviously leads to a build-up of dead stock to be reconditioned or refurbished. Returns have become commonplace, and this service is now considered an imperative for a retailer, as it is one of the main determinants for a buyer to validate an order. You can read to find out more about the benefits of offering returns to your customers.
Minimum orders imposed by suppliers
Suppliers often ask you to order a minimum quantity of products. This is the case for both distribution and production, for a number of reasons, the main ones being the production capacities and schedules set internally by your suppliers, or the economies of scale required to keep up with manufacturing costs.
Crises and force majeure
As mentioned above, crises such as the Coronavirus (COVID-19) or unpredictable, irresistible and external events known as "force majeure" (terrorist attacks, tsunamis, etc.) have a major impact on companies' dormant stocks. In fact, a halt in sales results in the accumulation of stock, which is caught up by fashion trends. Goods thus become unsaleable on the market.
Poor product manufacture and/or design
The famous "bad products" are mainly due to poor market research prior to production start-up, since products are launched into a market that is either not mature enough or too advanced. In cases where it's simply a question of manufacturing errors that don't meet expectations, you can turn to your supplier and have the products delivered in line with your initial studies. A word of advice: never start production before you've received a sample, to make sure that the product matches your desired design.
Fashions and market fluctuations
This cause is linked to demand forecasting. Indeed, with market trends and fashions becoming ever more random and rapid, many sales forecasts become biased, and many companies find themselves with inventories that don't correspond to market needs and demands.
Best before dates
This cause is particularly prevalent in the food and pharmaceutical sectors. Best-before dates generate enormous waste and destruction. It is estimated that 10% of the world's food production is lost every year.
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