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Dead stock is inventory that hasn't sold or been consumed in 12 months. How to identify it, the formula for its value and cost, why it builds up, and six ways to turn it back into cash — with a worked example.
Short answer: dead stock is inventory that hasn't sold or been consumed for a set period — usually 12 months — and is unlikely to move again at full price. It is cash you already spent, sitting on a shelf, costing you storage, insurance and handling every month. In companies that have never measured it, dead stock is typically 10-25% of inventory value, and a survey of US distributors found 26% report 6-10%. The good news: finding it is one query, and clearing it funds everything else.
Not to be confused with "deadstock" in sneaker and fashion resale, where it means brand-new, never-worn items still in the box. This page is about inventory that doesn't sell.
Dead stock vs slow-moving vs obsolete
| Term | Definition | What to do |
|---|---|---|
| Dead stock | No movement in 12 months | Liquidate, return or write off |
| Slow-moving | Moves, but you hold far more than demand needs (e.g. 300+ days of cover) | Stop reordering; recalculate reorder points |
| Obsolete | Can't be sold as intended (expired, superseded, discontinued) | Write off or scrap |
| Buffer / safety stock | Held deliberately to absorb variability | Keep — but size it with the formula |
The confusion that costs money: treating dead stock as buffer. A buffer is calculated; dead stock is a buffer nobody recalculated.
How to calculate it
Dead stock value = Σ On-hand value of items with zero consumption in the last 12 months
Dead stock % = Dead stock value ÷ Total inventory value
Annual cost of dead stock = Dead stock value × Carrying rate (typically 20-30%)
Worked example: a distributor with $2.4M of inventory runs the query and finds $420,000 in items with no sales or consumption in 12 months.
Dead stock % = 420,000 ÷ 2,400,000 = 17.5%
Annual cost = 420,000 × 25% = $105,000 a year
That's $105,000 a year spent storing, insuring and handling stock that earns nothing — before the write-off it will eventually need. How carrying cost is calculated.
Why dead stock builds up
- Reorder points set on old lead times. Buffers sized for 2021 supply, never recalculated.
- Minimum order quantities that force you to buy a year's supply of a slow item.
- Discontinued products nobody removed from reordering.
- Customer-specific stock held for a customer who stopped ordering.
- Engineering changes that superseded a component while stock remained.
- Nobody owns the report. The query exists; no one runs it monthly.
Six ways to clear it
- Return to vendor — negotiate a return or credit, especially for items still in their catalogue. Often worth 30-70% of cost.
- Discount to specific customers — offer it to buyers who use the item, before advertising it broadly.
- Bundle it with fast movers.
- Liquidate through a surplus buyer — low recovery, but frees space and cash immediately.
- Use internally — components can sometimes go into other products.
- Write off and dispose — take the tax deduction; check with your accountant how write-downs are treated in your jurisdiction.
Order matters: recover value first (1-3), then clear space (4-6).
How to stop it coming back
- Run the dead stock report monthly, not annually.
- Recalculate reorder points quarterly from actual lead times and demand.
- ABC classify items and review C-class items for discontinuation.
- Block reordering on items flagged as dead.
In Business Central this is a saved view on the item list filtered by last movement date, a scheduled report, and a "blocked for purchase" flag on items — ten minutes to set up, and it runs itself. The Profit Leak Audit finds your dead stock from your data on any ERP.
FAQ
Is 12 months always the threshold? It's the standard. Use shorter for perishables and fashion, longer for spare parts with legitimate long-tail demand.
Should I write it off immediately? Recover value first. Write-off is the last step, not the first.
Does dead stock affect my taxes? Write-downs usually reduce taxable income; the rules vary. Ask your accountant.
Is dead stock the same as excess inventory? Excess is more than you need; dead is what you won't sell. All dead stock is excess; not all excess is dead.
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