Wednesday, August 13, 2008

Inventory management- if inventory will need to be buried

by Jon Schreibfeder
Liquidating unwanted stock using the Internet (or any other method) is not always successful.

Can't everything be sold at some price? Unfortunately, no. Last week, a distributor gave me an example of material that cannot be sold, at any reasonable price. He has an assortment of repair parts for obsolete equipment. This equipment is not in service anywhere! No one could use any of these items except maybe as a rather ugly door stop. Because the parts are made of a combination of glass, plastic, and steel, they cannot even be sold as scrap. The only practical thing he can do with this stuff is to throw it out in order to free up the warehouse space for other items. That is, bury it! His company will be out what they paid for this inventory as well as the expense incurred in buying, receiving, and maintaining the material in stock.

Please avoid having to throw out inventory. Whenever you buy a new product, consider its "burial risk."
Always consider a new item's burial risk factor when setting customer prices. Fortunately, most products whose remnant stock will need to be thrown out tend to be less competitive and price-sensitive. Why? Because they are sold to a limited number of customers and have few uses. There isn't much of a market for them.

You are much better off planning for the inevitable burial of inventory that cannot be sold than letting it take you by surprise. If competition does not allow you to include a burial risk factor in your pricing:

* Consider whether or not you need to really stock the product. After all, you are taking a significant chance on absorbing a loss.
* If you must stock the product, be sure that other profitable sales will compensate you for your probable losses.

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