5 Tips on How Not to Repeat This Year’s Inventory Write-Off Next Year

Tuesday, February 11, 2020 8:00:00 AM

Categories: Inventory Management

By Mark Tomalonis
Principal, WarehouseTWO, LLC

It is tax season for your company.  If you are being realistic, chances are you are planning a sizable and painful write-off of dead/excess/obsolete inventory.  To avoid or reduce an inventory write-off in 2021, follow these five tips in 2020:

1.  Put talent in charge of inventory management.

Inventory is one of your company’s two largest assets.  The other largest asset is your accounts receivable.  You put a bright, well-educated, well-paid person in charge of your accounting/finance department, yes?  Do the same for your inventory management.  For more on this, read Why Your Inventory/Purchasing Manager Should be the Smartest Person in the Room.

2. Trust your ERP more than your sales team.

Who is better at analyzing usage history, unit cost, supplier lead time, and customer forecasts to calculate what to buy, how much to buy and when to buy it?  A computer or your sales team?  Who is less likely to use emotion and unbridled optimism to place a speculative stock decision?  A computer or your sales team?

Today’s modern ERP software systems have all sorts of data analytics tools to determine the best balance of investment risk and product availability.  And there are third-party software tools that specialize in inventory management that integrate with ERP systems, old and new.  If you already have a modern ERP system or third-party inventory management software tool, use it to its fullest.  “We don’t know how it works” is no excuse.  Get training.  If you have held off on investing in a modern, ERP system, but you wrote off inventory this year, rethink what you spend your money on.

3. Learn from last year’s purchasing mistakes.

Every line item that you wrote off for tax year 2019 has a “backstory” behind it, and its backstory contains one or more of these aspects:  bad decision, bad process, bad oversight or bad luck.  To avoid re-living past mistakes, read How to Learn from Your Surplus Inventory “Backstories”.

4. Reduce the ownership of risky inventory:  Leverage other distributors’ inventory.

Do you think that Amazon.com owns all of the items that are sold at the Amazon.com website?  Think again.  Amazon.com reduces its risk of owning inventory by letting someone else own it:  its vendor partners.

You can reduce your risk of owning inventory by participating in “inventory-sharing” with peer distributors.  By collaborating with peer distributors, you can service your end-customers better without increasing your own inventory investment.  To learn more about how to emulate Amazon.com’s inventory ownership risk avoidance, read Want to Sell More Without Stocking More? Do What Amazon.com Does.

5. Reduce the risk of owning inventory:  expand your potential buying audience.

The inventory that you wrote off for 2019 was likely identified as non-selling inventory.  “Dead”.  “Surplus”.  But it was non-selling only to the audience of your local end-customers.  Just because your local customers don’t want this inventory anymore does not mean that no one wants it.  By collaborating with peer distributors, you can expose your non-selling inventory to thousands of potential end-customers via the needs of dozens of peer distributors in other parts of the world.

For more on this, read 5 Reasons Why selling to Peer Wholesaler Distributors is Good Business and Got Surplus Inventory? Who Else Knows?.

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.