A Money-Saving Guide to Dead Stock vs Safety Stock

Do you have products sitting on the shelf, just collecting dust? Or do you struggle to keep up with demand and deal with frequent stockouts? Both of these issues are a result of poor inventory management. Today we’re going to talk about two types of inventory, dead stock and safety stock, so you can use them to your advantage and stop losing money.

What is Dead Stock?

Dead stock is any inventory that you don’t sell. This can be for a variety of reasons. Maybe the products are expired, outdated, out of season, damaged, or low-quality. We often see this with seasonal items that go in and out of style quickly. Once the moment or holiday has passed, they instantly lose customer appeal.

This is different from items that have been returned. Dead stock was never sold in the first place and is not likely to earn any revenue in the future.

Every product has a different lifecycle, and determining when something becomes “dead” depends on your business model. But ask yourself: is this item sellable? Is it likely to be purchased soon? If the answer is no, then you have dead stock on your hands.

Causes of Dead Stock

• Excessive Ordering: No one can predict the future. Whether it’s from a lack of data, overly optimistic sales projections, or a poor inventory management system, ordering too many units and struggling to sell them happens to most eCommerce brands at some point.

 

• Low Sales: During slow periods, you may find that products are piling up in the warehouse. If your items are low-quality, your prices are too high, or competitors are outperforming you, then you’ll see demand start to dip.
• Similar Items: If you’re selling lots of similar items, they may cannibalize each other. One will outperform the other, and the loser could easily end up forgotten for months and months.
• Poor Marketing: Your product may be perfect, but if you aren’t marketing it correctly, no one is going to know it exists. You have to get the word out there to avoid dead stock.
• Regulatory Hurdles: Increased pressure for product traceability, environmental compliance, and data labeling can render entire batches of products unsellable. In industries like food, cosmetics, electronics, and textiles, compliance rules change frequently. If you’re not able to adapt in time with supply chain overhauls or packaging redesigns, then you’re left with dead stock.
• Outside Factors: External factors such as global trade policy shifts, unpredictable tariffs, or international supply chain disruptions can also cause products to arrive late or in the wrong quantities. For example, renewed U.S.-China trade tensions or delayed shipments due to port congestion in Asia may result in seasonal inventory arriving too late to sell.

What is Safety Stock?

Safety stock is extra inventory that you strategically have on hand in case of supply chain shortages or a spike in demand. This gives your business some wiggle room to avoid stockouts. But how do you know how much extra to carry? Calculate this with the safety stock formula:

(Maximum Sales x Maximum Lead Time) — (Average Sales x Average Lead Time)

With ongoing global uncertainties, such as conflict in the Red Sea and labor strikes across North America, safety stock is more important than ever. These disruptions can drastically extend lead times and put your sales at risk if you’re not prepared with a buffer.

How Extra Inventory Impacts Your Business

No matter the reason, having extra inventory impacts your business and bottom line in several ways.

Dead Stock

• Bad for Business: First and foremost, having items that you can’t sell reduces your profits. The money you spent on inventory goes down the drain and you won’t recoup those costs. Those dollars could have gone to another, more profitable venture.
• Takes up Valuable Warehouse Space: Your shelf space isn’t infinite. That warehouse space could be used for better-selling items that are actually making you money.
• Increases Storage Costs: The price for storing products can add up fast. When you consider warehousing, wages, and insurance, the more products you have, the more it costs to hold them. You should make each one count.

Safety Stock

• Increases Profits: Having extra SKUs on hand is great when you see a sudden rush in demand. This allows you to not sell out as quickly and make a little extra cash, riding that sales surge for as long as possible.
• Improves Customer Satisfaction: By not selling out, you keep your customers happy, making them more likely to buy from you again.
• Provides Peace of Mind: Lastly, safety stock offers you and your team peace of mind, knowing that you have a plan for the future if your current sales pace changes.

How to Use Dead Stock

As we outlined above, extra stock just sitting in your warehouse is eating up money. Here are some creative ways to repurpose it that also benefit you.

1). Offer Free Gifts

When customers place an order, consider tacking on a free gift from your pile of dead stock. It will increase the perceived value of their order, make your customers feel appreciated, and open up some shelf space. If you don’t like the idea of just giving products away, only do it for customers whose order exceeds a certain dollar amount.

2). Begin Product Bundling

Bundle a best-selling item with a few dead stock items to clear them out. Product bundling works best when the items you pair are related to each other. That way, the customer will see real value in the bundle. For example, combine a best-selling face wash with a less popular face mask.

3). Mark Down the Price

Want to get rid of items fast? Offer discounts and advertise that it’s the last chance to grab these items. The price decrease combined with the limited-time offer may help you increase sales through scarcity marketing.

4). Donate Extra Stock

Donating stock to charity is another easy way to save warehouse space. While it may not help with revenue, it will show customers your commitment to corporate social responsibility, which is an important factor to many. Plus, you may be able to write it off on your taxes.

5). Return Items to the Supplier

If possible, see if you can return items to the supplier for a partial refund. It’s not as good as selling them at full-price, but it’s better than getting nothing in return. You’ll be able to recoup some of the money you paid and open up shelf space.

6). Liquidate Inventory

Lastly, you may need to liquidate inventory. Liquidation is when you sell items at a discount to companies so you can recover some of the investment you made in the beginning. You may not break even, but it’s a good way to free up your warehouse so you can focus on other products.

How to Prevent Dead Stock

These solutions for repurposing unsold inventory are helpful, but here’s how to avoid dead stock from the start.

• Test New Products: Before mass-purchasing new inventory, buy just a few items to test them out. Wait and see how popular they are and how customers react before committing to more.
• Get Customer Feedback: Read your reviews and talk to your customers. If you notice a trend of people complaining about product quality, that’s a sign you may end up with dead stock in the future. Try switching your supplier or improving your product to avoid that.
• Improve Internal Communication: Talking amongst your teams and departments can help you plan for the future and see what’s working—and what isn’t. This will help you avoid dead stock because you can flag it early.
• Update Your Inventory Management System: Demand forecasting isn’t an exact science. But the right inventory management system helps you respond quickly and avoid costly surprises. As tariffs and compliance requirements become more complex, you need real-time visibility into what’s in your warehouse, what’s sellable, and what may need repackaging or documentation updates.

The 3PL Difference

But the key to learning how to prevent dead stock is to outsource your logistics.

As trade policies evolve and regulatory hurdles increase, it’s more challenging than ever to manage logistics in-house. From environmental compliance in packaging to tariff implications on imported goods, working with a seasoned 3PL helps you stay compliant and agile, without drowning in red tape.

Advanced 3PLs like Jay Group can help you eliminate dead stock challenges. Our warehouse management system from Manhattan Associates improves your inventory accuracy rate and keeps you in control by providing real-time data whenever you need it. Don’t guess about your inventory status or rely on manual tracking. That’s where mistakes happen.

Work with Jay Group for:

• Tracking, storing, and managing your stock
• Accurately forecasting inventory needs
• Handling fulfillment and returns processing
• Saving money and warehouse space