Your Dead Inventory is Your Lemonade Stand

Categories: Inventory Management

By Mark Tomalonis
Principal, WarehouseTWO, LLC

Summertime! The season for neighborhood lemonade stands! Did you ever set up a lemonade stand in front of your house when you were a child? Do you have a child who has set up a lemonade stand this summer? In either instance, why did someone buy lemonade? Typically, there are only two reasons why someone would buy your lemonade:

• the buyer (neighbor?) is thirsty
  
  
• the buyer (neighbor?) is just being nice

In our experience, the vast majority of people who buy lemonade from a neighborhood child’s lemonade stand do it only because they are being nice.

Your Dead Inventory is your “Lemonade Stand”

Imagine setting up a “lemonade stand” for your company’s dead inventory. Will other wholesaler-distributors buy your dead inventory, just to be nice? Would YOU buy another distributor’s dead inventory, just to be nice?

In either case, probably not.

No peer distributor is going to buy your dead inventory, just to be nice. And you are not going to buy another distributor’s dead inventory, just to be nice. There must be “thirst” for one’s dead inventory. What drives that thirst?

What Drives “Thirst” for Your Dead Inventory?

Peer distributors will buy your dead inventory only if they need it, only if they are “thirsty” for it. In most communities of peer distributors, that thirst is driven by one or more of these factors:

Lack of availability / long lead times from your supplier: Does anything that you sell have a factory lead time of three weeks or more? Your customers likely will not tolerate that delay. Today’s industrial end-customers behave just like consumers: they expect everything and anything to be available now, for immediate shipment. Your dead inventory may be another distributor’s unexpected backorder.

Minimum purchase quantity or PO value restrictions imposed by your supplier: Do any of your suppliers impose minimum package quantity requirements? Your dead inventory may resolve another distributor’s small quantity demand, allowing that distributor to avoid minimum quantity requirements or penalties.

High unit costs for small quantity purchases: Do you and your peer distributors lose discount or pay higher unit costs when buying small quantities of rarely sold, small volume items? Are these cost differences significant?

Even if the above factors are minor influences in your business, inventory-sharing can help you sell dead inventory. For many distributors who buy and sell dead inventory via WarehouseTWO, these factors affect no more than five percent (5%) of their sales transactions.

How to Turn Other Distributors’ “Thirst” into Sold Dead Inventory

To attract other distributors to buy your dead inventory, follow these simple steps:

• Recognize, and promote to peer distributors, formalized inventory-sharing as an inventory-sourcing solution, not just as a dead inventory-dumping solution.
  
  
• Participate in inventory-sharing as a buyer. To continue the metaphor of this article, quench your thirst at other distributors’ lemonade stands. Successful inventory-sharing is a two-way process. If you are not willing resolve your own customers’ demands by buying from other distributors, how can you expect other distributors to buy from you? Your actions as a buyer will prompt other distributors to act in kind. (Think of the “barking dogs” effect.)
  
  
• Involve your customer service (inside sales) people in inventory-sharing, as buyers. Explain to them why and when to buy from other distributors. Clearly communicate conditions under which you approve of them buying from another distributor (such as when factory lead times exceed “X” weeks, or to avoid minimum package quantity purchases).
  
  
• Offer up your entire inventory to peer distributors, including your good/active inventory. The greater variety of inventory available in an inventory-sharing community, the more likely distributors will come back to quench their thirsts, and as a result, find your “lemonade”. You do not have to sell your good inventory at low profit margins, and you do not have to sell to a cross-town rival. Learn more about tips and tricks on how to offer your inventory, by attending our “How to Upload Inventory Data” training webinar. Click here for details.
  
  
• Deploy the WarehouseTWO inventory-sharing tool. It is the easiest to use, most cost-effective inventory-sharing tool available to wholesaler-distributors.
  
  
• Teach your customer service (inside sales) people how to use WarehouseTWO. Our web site has training tutorials. We offer free training webinars every month. Click here for our schedule of up-coming training webinars.
  
  
• Invite peer distributors to participate at WarehouseTWO. Successful inventory-sharing requires “critical mass” participation. Click here to learn how to attract peer distributors to WarehouseTWO. Click here to learn how to earn six months’ free membership, just by getting peer distributors to participate with you at WarehouseTWO.

Selling Dead Inventory via WarehouseTWO Really Works

Active members of WarehouseTWO frequently sell dead inventory to peer distributors. Here are examples of the success our members have had:

"In fourteen months, we sold $26,000 worth of dead inventory, at a profit. I would have scrapped part or all of this had I not been participating at WarehouseTWO."

Jerry Orlando
Components and Controls
Carlstadt, NJ USA

"Through WarehouseTWO, we’ve sold items which hadn’t moved in six or seven years. It’s great to sell these items and get them off our shelves."

Matt Loss
Geib Industries Inc.
Franklin Park IL, USA

"I had a long-time customer go under this past summer. I took back a lot of product for credit, to cover what this customer owed us on its account. I posted this inventory to WarehouseTWO and sold it in three days!"

Fred Stanwood
Oil Filter Service Company
Portland, OR USA

Learn More About WarehouseTWO

Visit our website or email us to about how formalized inventory-sharing can help your company.

About the Author
After a successful career in sales and operations management in the wholesale-distribution industry, Mark Tomalonis is now principal of WarehouseTWO, LLC.  He amuses himself by writing articles, such as this one, to help wholesaler-distributors execute their operations better.  Mark’s articles and tips are published in WarehouseTWO’s monthly e-newsletters.  Click here to subscribe.

About WarehouseTWO
WarehouseTWO, LLC is an independent “inventory-sharing” service created exclusively for durable goods manufacturers and their authorized distributors, and for any group of durable goods “peer” wholesaler-distributors, such as members of a buying/marketing group or cooperative.  To learn how inventory-sharing with WarehouseTWO can help your business, visit the WarehouseTWO website, or email info@warehousetwo.com.