Stuck With Stock?

 INVENTORY MANAGEMENT 01Here are some “dos and don’ts” for effective inventory management.

By Gary C. Smith

When it comes to efficient inventory management, even tightly run companies may have room for improvement. It’s easy to get stuck in a rut when disposing of unwanted stock, without asking if there’s a better way.

For example, discounting nonperforming merchandise devalues products and undermines sales, yet many wholesalers and distributers continue to do it. Liquidating merchandise yields just pennies on the dollar, yet liquidation vendors are alive and well.

Why not step back from your familiar inventory management processes and see if there’s a solution you’ve overlooked? You want to ensure you get the most from what you’ve got—even your least successful products. To that end, consider these dos and don’ts for efficient inventory management.

 

 DO: Make a plan for your slow-moving inventory. It may sound obvious, but one of the most common “don’ts” companies make is to delay taking action with their overstocks. But time is money, and procrastinating has a price. Accumulated inventory is not only draining your resources in terms of warehouse space and manpower, it could result in paying greater taxes at the end of the year. 

DO: Lose the hoarding mentality. Are you holding out hope that you might find a way to move those non-selling products down the road? If you haven’t so far, it’s unlikely. In the meantime, they’re clogging up and slowing down your warehouse operation. Leasing additional storage space might seem like a viable option (your landlord will love the idea), but why incur more costs to store unprofitable products you’re better off without?

DO: Rethink liquidation as a solution. Selling your excess inventory for a fraction of its value may cost your company more than just a loss of profits. If those goods end up in secondary markets, you may find them competing with your current stock. While e-commerce can be a beautiful thing, it also means price comparisons are just a click away, and many bargain-hunting customers will choose the older, less-expensive option. Who loses? You do.

DO: Focus on your winning products. Once sales have flatlined for a particular product, what makes you think demand will magically increase at some later date? You can continue to sell outdated merchandise, but there isn’t much of a long-term benefit. It not only detracts from the freshness of your brand, it forces your workforce to dedicate time and energy to unprofitable stock. It’s just better business to place your focus on newer, more appealing, profitable products and lines.

DON’T: Dump it. Landfills aren’t the answer. Besides the risk that your products will end up on secondary markets, in today’s environmentally conscious market, do you want to be the company that tosses perfectly good merchandise in the trash?

DO: Consider donating it. Did you know that donating your unwanted inventory is not only tax deductible, but may be worth up to a twice-cost federal tax deduction? And that thanks to the work of gifts-in-kind organizations – 501(c)(3) nonprofits that collect corporate product donations and then distribute them to other qualified nonprofits – the donation process is surprisingly fast and easy?

DO: Learn how gifts-in-kind donations work. In a nutshell, gifts-in-kind organizations have two types of members: companies that donate their unwanted merchandise and nonprofits that benefit from their gifts.

Once your company joins a gifts-in-kind organization (typically, there is no cost to you), you can donate stock at any time, allowing you to keep your inventory current year-round. You make a list of what you plan to donate, submit it for approval, and then ship it to the organization, which gets products into the hands of those who need them.

It’s much faster than discounting and liquidating, and your merchandise won’t find its way back on the open market. The charities that request it are required to use it in a manner consistent with their mission.

You’ll receive tax documentation of the donation for your records. And as mentioned earlier, if your company is a C Corp, you’re eligible to receive a federal tax deduction equal to up to twice the cost of the donated products.

According to a piece of tax code called 170(e)(3), deductions are equal to the cost of the inventory donated, plus half the difference between the cost and fair market-selling price, not to exceed twice the cost. Do the math with one of your discounted products – it’s undoubtedly more advantageous than whatever method of inventory disposal you are using now.

So when you weigh the pros and cons, donating your unwanted stock may be the best way to proactively manage your inventory, while protecting your brand and bottom line, all while making the world a better, brighter place.

Gary C. Smith is president and CEO of National Association for the Exchange of Industrial Resources (NAIER), the largest gifts-in-kind organization in the U.S. Based in Galesburg, Ill., NAEIR has received donations of excess inventory from more than 8,000 U.S. corporations and redistributed more than $3 billion in products to non-profits and schools. Smith may be reached at 800-562-0955.

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