Sleeping stock: a silent enemy for your business
In the complex world of inventory management, there is a scourge that stalks companies of all sizes and in all sectors: sleeping inventory. A silent enemy, it undermines profitability, ties up precious resources and undermines overall business performance. In this article, we take a closer look at this phenomenon, its causes, its consequences and, above all, how to combat it effectively.
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What is sleeping stock?
Sleeping stock, also known as dormant stock, sleeping inventory or immobile stock, refers to products that have not been used or sold for an extended period of time. According to a study carried out by the consultancy firm Deloitte, “a product is generally considered to be sleeping when there has been no transaction (sale or use) for at least 12 months“.
These products, gathering dust in warehouses, represent a real financial burden for companies. Not only do they tie up capital that could be invested more productively, but they also generate storage and handling costs without generating any revenue whatsoever.
The causes of sleeping stock
To combat sleeping stock effectively, it is essential to understand the reasons why it can occur. Among the most common causes are :
1. Forecasting errors
When sales forecasts are too optimistic, the company ends up with surplus quantities of products that do not find takers.
2. Obsolescence
With the rapid evolution of technology and consumer habits, some products become obsolete before they are even sold.
3. Changes in strategy
A company repositioning, the discontinuation of a product line or a change of supplier can make certain stocks redundant.
4. Speculative purchases
Expectations of price rises or shortages can lead to excessive purchases, resulting in sleeping stocks.
5. Quality problems
Products that are defective, do not conform to standards or have been damaged in transit may find themselves blocked in stock.
“Forecasting errors and obsolescence are the two main causes of sleeping stock, accounting for 32% and 28% of cases respectively“, according to a study carried out by MIT (“Tackling Dead Inventory: Strategies for Improving Inventory Management“).
The consequences of sleeping inventory
Sleeping stock is not without consequences for companies. In addition to the direct financial impact, it can have negative repercussions on many aspects of the business:
1. Cost of ownership
Sleeping stock takes up space, requires handling and can deteriorate over time, resulting in holding costs that can become significant.
2. Financial losses
Sleeping products represent tied-up capital that generates no income and may even lose value over time.
3. Disruption to operations
Sleeping stock can disrupt warehouse management, complicate inventories and hamper operational efficiency.
4. Impact on cash flow
Money tied up in sleeping stock cannot be invested in more profitable projects or used to pay supplier invoices.
5. Depreciation risk
Over time, sleeping products may deteriorate, become obsolete or lose their value, leading to accounting write-downs.
According to a study conducted by PwC, “companies that manage to reduce their sleeping inventory by 20% can improve their operating margin by 1.5 to 3 percentage points” (PwC, “Unlocking the Value of Dormant Inventory“, 2020).
How to identify sleeping inventory?
To combat sleeping inventory effectively, you first need to be able to identify it. Several methods can be used:
1. Stock rotation analysis
By calculating the ratio between sales (or consumption) and average stock, you can identify slow-moving products that are likely to be sleeping.
2. Analysis of stock age
By sorting products by last transaction date, we can identify those that have not moved for a certain period (6 months, 12 months, etc.).
3. ABC analysis
By classifying products in order of importance (by value or volume), you can focus on the most critical references and detect any sleeping products.
4. Rotating inventories
By carrying out regular physical inventories, you can identify any discrepancies between theoretical and actual stock levels and spot any sleeping products.
According to a study by Aberdeen Group, “companies that carry out regular rolling inventories reduce their sleeping stock by an average of 27%” (Aberdeen Group, “Inventory Optimization: The Key to Supply Chain Efficiency“, 2022).
How to reduce sleeping stock?
Once sleeping stock has been identified, it’s time to take action to reduce it. Several strategies can be implemented:
1. Disposal of stock
Set up targeted sales campaigns (promotions, sales, bundles) to sell off sleeping products.
2. Supplier returns
Negotiate with suppliers the possibility of returning sleeping products or exchanging them for more saleable references.
3. Donations or tax-free gifts
Donating sleeping products to charities or schools can free up space while benefiting from tax breaks.
4. Accounting depreciation
Making a provision for the depreciation of sleeping stocks allows their loss of value to be reflected in the company’s accounts.
5. Destruction
In some cases, particularly for obsolete or deteriorated products, destruction may be the only option, taking care to comply with environmental standards.
In addition to these curative actions, it is essential to put in place preventive measures to avoid the accumulation of sleeping stock:
- Improve sales forecasts by using statistical tools and working closely with sales and marketing teams.
- Put in place indicators to monitor stock rotation and stock age to detect products at risk early on.
- Regularly reviewing stock management parameters (safety stock, order quantity) in line with changes in demand.
- Involve suppliers in stock management, for example by setting up automatic replenishment or consignment systems.
Conclusion
sleeping stock is a real scourge for businesses, undermining their profitability and damaging their performance. By understanding the causes of this phenomenon and implementing targeted strategies to reduce it, companies can free up valuable resources and become more competitive.
The fight against sleeping stock requires continuous improvement in stock management processes, close collaboration between the various functions within the company and the use of high-performance management tools. By taking up this challenge, companies are giving themselves the means to control their stocks, satisfy their customers and sustain their business in an increasingly competitive environment.
To find out more about the different types of stock and how to manage them optimally, we invite you to read our full article on the subject: The different types of stock: how to manage them effectively?
Stock management is a subtle art that requires expertise, rigour and agility. By putting the fight against sleeping stock at the heart of their priorities, companies are taking another step towards operational excellence and customer satisfaction. It’s a challenge within everyone’s grasp, provided they give themselves the means.
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