How to find and clear dead stock

Almost every manufacturer has inventory that has not moved in a long time. It takes up space, ties up cash and makes the useful stock harder to find. This article explains how to find dead stock, decide what to do with it and stop it from building up again.

Dead stock and slow-moving stock

• Dead stock: items with no usage or sales over a defined period, often twelve months or more, and no expected future demand.
• Slow-moving stock: items that still move, but far more slowly than the quantity on hand would justify.
• Excess stock: quantities above what you expect to use in a reasonable period, even for active items.

All three tie up working capital. Dead stock is simply the most obvious.

Step 1: Pull the data

From your ERP, export each item with:

• On-hand quantity and value
• Date of last issue or sale
• Usage over the last twelve and twenty-four months
• Open purchase orders and open demand
• Which finished products use it, from the bill of materials

Step 2: Calculate coverage

For each item, calculate how many months of stock you hold at the current usage rate:

• Months of coverage = on-hand quantity ÷ average monthly usage

Items with no usage have infinite coverage and go straight onto the dead stock list. Items with very high coverage, such as several years, go onto the slow-moving list. You can also use the inventory turnover calculator for a category-level view.

Step 3: Check before you act

Data alone can mislead. Before calling an item dead, check:

• Is it a service or spare part that must be kept for existing customers?
• Is it used in a new product that has not launched yet?
• Is it seasonal, with demand at a specific time of year?
• Is there a customer agreement that requires you to hold it?
• Is the on-hand record accurate? A physical count may be needed.

Review the list with purchasing, engineering and sales. They often know why an item is there.

Step 4: Decide what to do

For each confirmed dead or excess item, choose an action:

• Use it: substitute it for an active part where engineering approves.
• Return it: some suppliers accept returns, sometimes with a restocking charge.
• Sell it: offer it to other manufacturers, brokers or surplus buyers.
• Rework it: modify it into a usable part, if that costs less than buying new.
• Scrap or donate it: for items with no realistic use, writing them off frees space. Speak with your accountant about how write-offs are treated.

Step 5: Stop it coming back

Clearing dead stock once is useful; preventing new dead stock is better. Common causes and fixes:

• Order quantities far above usage: review supplier minimums and order sizes. See EOQ vs MOQ.
• Old reorder points: update them for current usage. See the reorder point formula guide.
• Engineering changes: when a part is replaced, block new purchases of the old one and plan to use up the remaining stock.
• Forecasts that did not happen: review purchases for new products and large orders in your S&OP meeting.
• No regular review: run the dead stock report every quarter. ABC/XYZ classification helps you spot erratic, low-value items early.

A note on value

It is tempting to estimate how much money dead stock is costing, but be careful with general rules of thumb you may see online. Your actual carrying cost depends on your space, capital, insurance and handling costs. If you need a figure, build it from your own numbers.

How we help

We find slow-moving and dead stock in your ERP data, review it with your team and help you build the rules that keep it from returning. See our dead stock and working capital service. Free call first, scope agreed before we start. For more free tools, visit the free supply chain tools page.

Frequently asked questions

How long without usage before an item is dead?

Twelve months is a common starting point, but choose a period that fits your business. Items with long, irregular demand cycles may need a longer window.

Will writing off dead stock hurt our results?

A write-off affects your accounts, so speak with your accountant about timing and treatment. Keeping stock that will never be used does not make its value real.

Can we sell dead stock back to the supplier?

Sometimes. Some suppliers accept returns of standard items in good condition. It is worth asking, especially for items still in their catalog.

How do we stop engineers creating new dead stock?

Add a step to your engineering change process that checks on-hand stock and open orders for any part being replaced.