What is Deadstock? Best Strategies for Managing Deadstock

Deadstock also known as dead inventory means products remain in warehouse storage, unsold and unused. It matters because it ties up cash, takes up warehouse space, and can quietly eat away your profits if left unchecked.

Many companies struggle with this issue, and spotting it early can not only free up your warehouse space but also elevate your profits.

Poor forecasting, sudden demand drops, and over-ordering are some of the definitive deadstock drivers. You can overcome this with a better inventory control system (that we have at AAJ SCM).

What is Deadstock?

Deadstock is business inventories that remain unsold inside the warehouse or fulfillment center. It just accumulates, gathering dust, and quietly adds to costs and headaches in the supply chain.

This inventory is often untouched in warehouses for months—sometimes years. You can say that deadstock doesn’t have any real demand at all.

What usually ends up as deadstock? Here are some:

• Outdated technology or models.
• Seasonal leftovers or other holiday items.
• Faulty or expired goods.
• Changing consumer preferences.

Key Characteristics of Deadstock

1. Ties up your money
2. Eats up space that could be used for demandable items
3. Potential loss of product value with time.

So, you’re paying Warehouse storage costs, insurance, and sometimes even taxes on deadstock.

Impact on Supply Chain Operations

• Too much deadstock can block the cash flow of any business, making it challenging to buy new stock or invest in upgrades.
• If it gets out of hand, you might face write-offs and losses in your finances.
• It can also slow down operations, harm relationships with suppliers, and make it harder to jump on new trends.

It’s better to always choose managers and 3PL services in India that always keep an eye on deadstock and notify you.

Why Deadstock Matters: The Business Impact You Can’t Ignore

Deadstock directly affects how much money is kept invested in non-used inventory that racks up expenses. Here are some of the major impacts a business has due to deadstock:

1. Financial Drain: Ties up capital that could be used for future investments or operations. Example: Unsold seasonal snacks and beverages in a shop that result in cash flow issues.
2. Excess Storage Costs: Rising warehousing costs reduce profit margins. For example, e-commerce sites such as Flipkart and Amazon India have to bear high storage charges for inventories.
3. Slower Inventory Turnover: Deadstock delays the launch of new products in the market. Example: A company struggled with funds and delayed a new product launch due to unsold inventory.
4. Reduction in Profit Margins: Businesses are slashing prices to clear old inventory, which leads to decreased revenue. Example: Premium apparel brands in India slash prices to sell off unsold seasonal collections.
5. Environmental Waste: Disposal leads to non-biodegradable waste, worsening sustainability challenges. Example: Unsold Fast-Moving Consumer Goods (FMCG) like expired packaged foods.
6. Brand Reputation Loss: Offering dead inventory at heavy discounts stains premium brands’ value. Example: Some luxury clothing brands burn their unsold products to keep the brand’s exclusivity and prevent discount sales.
7. Resource Wastage: Deadstock wastes raw materials, utilities, and labor used during manufacturing.

How to Calculate Deadstock With Examples?

Calculating deadstock helps you to spot which products need to be addressed to decrease losses. Here are the steps to identify dead inventory:

Steps	Description	Example
1. Identify Total Stock	Count the total units of inventory available in the warehouse/store.	For a clothing store, total stock includes 1,000 shirts, 500 pants, and 200 jackets.
2. Determine Slow-Moving Items	Identify items not sold for a specific period (e.g., 6 months, 1 year).	Of the 1,000 shirts, 300 weren’t sold in 6 months.
3. Note Deadstock Threshold	Define how long an item can remain unsold before it’s considered dead inventory.	The store defines any item unsold for 12 months as “deadstock.”
4. Count Deadstock Items	Calculate the quantity of inventory meeting the threshold criteria.	Out of 300 unsold shirts, 150 remain on display for more than 12 months, making them dead inventory.

A. Formula for Calculating Deadstock

Deadstock (%)= (Deadstock Inventory / Total Inventory) × 100

So, for the above example:

• Total stock: 1000 shirts
• Deadstock: 150 shirts

Deadstock%= (150 / 1000) x 100 = 15%

Following are other examples where the dead inventory threshold is 6 months:

Product	Total Inventory	Unsold (6 Months)	Deadstock (6 Months)	Deadstock %
Smartphones	500	50	50	(50÷500)×100= 10%
Laptops	300	20	20	(20÷300)×100= 6.66%

B. Calculating Deadstock Value

Deadstock Value: Deadstock Quantity × Cost per Item.

So, as per the above examples:

• If the cost of each unsold shirt is ₹299, then as per the formula:
• Deadstock value = 150 unsold shirts x ₹299 = ₹44,850

5 Major Reasons for Deadstock

Why does deadstock pile up? There are a few big reasons, and knowing them helps you avoid the same traps.

1. Poor Demand Forecasting

When sales predictions and demand forecasting are inaccurate, businesses overestimate demand. Example: A retailer over-orders woolen sweaters, expecting a cold winter, but faces low demand due to a mild season.

2. Changes in Customer Preferences

Customers’ choices shift due to new trends or emerging competition. Example: A local smartphone shop sees unsold cases for an older phone model as people move to newer models.

3. Large Order Quantities

Businesses bulk order to get discounts but fail to sell the stock. Example: A retailer orders 2,000 power banks to get a bulk discount. Soon after, a competitor launches a better model, and sales drop.

4. Product Expiry

Food items like dairy products expire in stores before being sold. Example: A grocery store stocks a large batch of yogurt based on previous sales trends. Unfortunately, due to a local festival, footfall drops for a few days. As a result, a significant portion of the yogurt stock expires before it can be sold

5. Ineffective Inventory Management

Lack of proper tracking systems to monitor stock. Example: A pharmacy misplaces batches of medicines, causing them to expire unnoticed.

Proven Strategies to Minimize and Manage Deadstock

Strategy	Description	Example
Accurate Demand Forecasting	Use sales data to predict trends	Forecasting demand for linen shirts in summer.
Optimize Inventory Ordering	Order in smaller, frequent batches	Bakery orders cakes in limited daily quantities.
Seasonal Product Planning	Focus sales efforts during peak times	Selling festival goods before Holi/Diwali.
Inventory Tracking Systems	Monitor stock in real time	Expiry tracking in pharmacies to avoid losses.
Flash Sales and Promotions	Use discounts to clear outdated inventory	Selling unsold cases for old phone models via flash sales.
Donate or Recycle	Repurpose or donate unused inventory	Donating unsold clothes to NGOs or recycling scraps.
Supplier Flexibility	Negotiate return agreements with suppliers	Returning unsold seasonal footwear stock to suppliers.

Partner with AAJ SCM to Minimize Dead Inventory Risk

Now, it might be clear to you how deadstock can silently drain your business resources and damage your profit margins.

However, the solution lies in partnering with experienced 3PL Companies who understand these challenges and offer you better and proactive 3PL solutions. And we at AAJ Supply Chain Management deliver to you all of that.

Why Choose AAJ Logistics:

• Advanced demand forecasting: We use AI-powered analytics to predict demand and over-ordering.
• Inventory tracking: Real-time monitoring and updates to stock levels and slow-moving items before they become deadstock.
• Expiry management systems: FIFO (First In, First Out) and automated alerts for time-sensitive products.
• Flexible storage solutions: Scalable warehousing that adapts to seasonal demands.
• Cost-effective operations: Maximizing inventory efficiency that results in lower storage fees.

So, what are you waiting for? Partner with AAJ Supply Chain Management now and prevent the company from deadstock losses.