Question: Can you relate to the reality TV show "Hoarders?"
Answer: A couple of years ago I worked with a company anticipating its peak season. Its warehouse was already at its limit. What were they to do with all the additional inventory needed to support their upcoming spike in business?
Management was panicking. I said: “Take a deep breath. Let's first look at the composition of the current inventory.”
What we found was not dissimilar to what exists in many warehouses. Valuable shelf space was being consumed by obsolete product or by dust-covered inventory that hadn't been handled in months ... or in some cases, years. This is a distributor's version of hoarding. And like the hoarders on the TV show, this is an unhealthy practice.
Many, many moons ago when I first started my career, when the cost of money and operating a business were quite different than they are today, collecting inventory had a lesser impact. In some cases, it was the recommended approach. But in today's world, that excess is like an albatross, choking off valuable resources like space, cash and profitability.
Bottom Line: A proactive approach to inventory management will save you and your company the hoarder's grief. Follow these practical recommendations:
- Remove emotions from your decisions. Let numbers and facts guide your decisions.
- Consider (but do not hold as gospel) the pleadings of your salespeople. They'll never want you to discontinue inventory.
- At appropriate times it is OK to discard inventory and take the write-off. Just ask your CPA.
- Consolidate slow-moving or dead inventory that is not appropriate for a write-off, and store in the upper reaches of your warehouse, creating valuable space for faster moving stock.