Many e-commerce brands face rising levels of dead stock — the merchandise deemed unsellable or unlikely to sell soon. As executives evaluate e-commerce dead stock reduction options, some initially assume they primarily face a procurement issue. However, it is actually a fulfillment problem to solve on the warehouse floor.
Numerous factors affect this obsolete inventory. Inaccurate demand forecasting is a common culprit, but some e-commerce brands also accumulate outdated product versions, near-expired items or damaged goods. That collective merchandise then collects dust on warehouse shelves that facility managers could use to store faster-moving alternatives. Which inventory optimization strategies should they implement, and why do these actions matter?
Prioritize a Distributed Logistics Network
Bringing goods closer to the consumers who purchase them is an e-commerce best practice, especially as many companies cater to buyers worldwide. If it takes too long for those furthest from a brand's distribution center to receive their orders, some will decide to shop elsewhere. This problem can also result in more dead stock of perishable items, particularly when average shipping times are long enough to risk spoilage before they reach their destinations.
Home Depot recently invested in distributed logistics to speed the delivery time frames for online orders. The company says 55% of in-stock item deliveries arrive on the same or next day.
Numerous facility-related investments to bolster the supply chain have driven that success. Among the new locations are 20 direct fulfillment centers strategically located near customers who store the most popular products. There are also 17 flatbed distribution centers specializing in the handling of big and bulky building materials.
Another key component is a proprietary algorithm that determines the optimal shipping location for an online order based on several factors. This approach has significantly shortened delivery times, and it is easy to see how it could also reduce dead stock.
Aspects such as seasonal weather patterns make specific e-commerce items primarily popular in particular regions throughout the year. Once leaders become aware of what makes some items wildly popular or less likely to sell, they can dig into the data and determine whether there are geographical drivers at play. In those cases, they can then plan to stock the relevant distribution centers with the products most consumers want.
Explore Kitting to Streamline Operations
Most supply chain leaders continually seek operational improvements. Their efforts often reveal inventory optimization strategies that can reduce dead stock and enable other improvements. Kitting is a packaging-related enhancement that delivers benefits throughout the supply chain when done well. It involves handling grouped items as single units, unlocking improved efficiency and fewer errors by eliminating separate picking and packaging steps and decreasing overall handling.
E-commerce leaders also target e-commerce dead stock reduction by increasing the appeal of less-popular merchandise by selling it alongside higher-demand items. Kitting can boost productivity through subscription sets, which have driven online sales in recent years. Many consumers love the idea of regularly getting products, from snacks to cosmetics, sent to them.
Because many brands do not explicitly list the contents of subscription boxes, the element of surprise entices customers to keep buying. Some even package random or low-selling items with the most in-demand things, targeting items that would otherwise become dead stock. The chance of getting high-value products mixed in with the less-exciting stuff makes some consumers more willing to try.
Kitting also appeals to e-commerce companies specializing in corporate welcome kits. Providing items such as office supplies, apparel and other goodies might help new hires feel like part of the team faster. Packaging those items together enhances aesthetic appeal and can save resources. Assembling them in warehouses before distribution also decreases the chances of lost or forgotten items.
Some companies also offer custom kitting to direct-to-consumer and B2B e-commerce enterprises. These reinforce brand voice and elevate the unboxing experience. Impressing recipients that way may encourage some of them to film it and share the footage online.
Include Reverse Logistics in E-Commerce Dead Stock Reduction Efforts
Most e-commerce leaders recognize the need to develop and maintain robust reverse logistics strategies to handle the growing volume of returned items. However, they do not always connect this aspect to dead stock. Returned products that they cannot sell eventually become dead stock, so executives should track overall product quantities and determine the best ways to profit from them when possible.
A relatively new option is to sell them to specialty liquidators who purchase returned items to resell. One representative in that business reports buying up to 60 truckloads of such merchandise per month, each holding approximately 25 pallets. Those are sight-unseen transactions, keeping the contents of each batch a mystery until after the transaction occurs. Some items are brand-new, while staff label others as hard to sell or discard them.
E-commerce brands can also handle returned items internally, such as by deeply discounting products with minor cosmetic flaws or missing components. The reduced price is often enough to make people overlook the imperfections, especially if they want great deals.
Another possibility is to create refurbishment centers within existing warehouses and train employees to identify items with fixable issues before reselling. Companies usually sell refurbished items at prices below retail, appealing to cost-conscious customers. Some also guarantee the performance and longevity of those goods to give purchasers confidence.
Besides providing e-commerce dead stock reduction methods, this approach boosts supply chain value. DHL has a substantial reverse logistics network, enabling retailers to recover up to 90% of the returned products’ value.
Boost Profitability with These Inventory Optimization Strategies
Although supply chain professionals often consider dead stock a procurement matter, it is often addressable with effective warehouse-related improvements and fulfillment changes. Room for improvement may also exist from a procurement perspective, but executives should take care not to immediately and solely focus on those aspects.
As they implement strategic e-commerce fulfillment enhancements, they should set clear, measurable goals and track associated metrics. The associated data will eventually reveal whether things are moving in the right direction or need further tweaks. Although there is no universally applicable strategy, following well-established best practices can yield meaningful results.
Emily Newton is the Editor-in-Chief of Revolutionized. She regularly covers trends in the industrial sector.
