Leak 21 · Inventory & Working Capital - Dead and obsolete inventory
Inventory with no demand and no prospect of demand. It is on the balance sheet at cost, and it will never be worth that again.
Diagnostic note. Symptoms, required records, an initial check, and possible fixes. This shorter note does not include a full worked example.
What is it?
Dead stock is slow stock that has stopped moving entirely: discontinued items, superseded part numbers, leftovers from a customer who left, and one-off buys that never sold. It costs space and carrying cost every month, distorts inventory metrics, and usually ends in a write-down that could have been smaller had it been dealt with earlier.
- Family
- Inventory & Working Capital
- Primary owner
- Inventory Manager
- Secondary owners
- CFO, Purchasing Manager, Sales Managers
- Primary impact
- Working capital
- Typical data source
- ERP inventory valuation, demand history, supplier discontinuation notices
- Detection difficulty
- 30-day measurability
Ask yourself
Is there a written disposition process for items with no sales in 24 months, and when did it last run?
Yes, partially, no, or don’t know. “Don’t know” is the most useful answer, because it points at the test below.
What does it look like?
Warning signs. None of these proves the leak exists. They tell you where to look.
- Items with zero sales in 24 months still carried at full cost.
- No reserve for obsolescence, or a reserve that is a flat percentage rather than item-based.
- Superseded part numbers still stocked alongside their replacements.
- Write-downs that surprise the owner at year end.
What data do I need?
The minimum viable set. Most of it is already in your ERP.
| Field |
|---|
| Item, on hand, unit cost, extended value |
| Last sale date and last receipt date |
| Supplier status: active, discontinued, superseded |
| Return eligibility |
The initial check
Start with a small sample. Gathering the exports, agreements, or observations is separate from running the check; agree that work with the person who owns the records.
- 1Export inventory with last sale date and total the value of items with no sales in 24 months.
- 2Sort by value and look at the top twenty. Note why each was bought.
- 3For each, check whether the supplier would take it back, whether a customer could use it, or whether it can be sold at any price.
Dead stock value = Σ extended cost where last sale > 24 months ago; likely recovery = Σ by disposition route
Then ask one question: Who decided to keep each of the top twenty, and when?
How much could it be costing us?
A conservative range, not a headline. The goal is a number management can trust enough to investigate.
Dead stock value × carrying cost rate per year, plus (cost − expected recovery) as the eventual write-down
Common root causes
Fixes fall into three layers. Not every problem needs software, and almost none needs AI first.
- Process
- No disposition process, so dead stock is never dealt with.
- Data
- Supersession and discontinuation are not recorded on the item.
- Technology
- Nothing flags an item when it crosses into dead status.
What should we do?
Start with the simplest intervention that could solve it. Move down the list only if the one above is not enough.
Level 1
Visibility
A quarterly dead-stock list by value with a disposition column.
Level 2
Process
Return, transfer, sell, donate, or scrap, in that order, with an owner and a deadline for each item.
Level 3
Prevention
Discontinuation notices update the item record and stop reordering automatically.
Where AI helps
- Reading supplier discontinuation and supersession notices and updating item records.
- Matching dead items to customers or marketplaces where they might sell.
Where AI probably doesn’t
The list already exists in the ERP. The missing piece is someone whose job it is to act on it.
Before you call it a leak
- Writing down dead stock has tax and covenant implications. Involve the controller before disposing.
Think this might be happening in your business?
Turn the finding into a next step.
If the numbers say there is something there, send us what you found and we will help you decide whether it is worth a full investigation. No transaction files needed for that conversation.
Related leaks
- Leak 20 · InventorySlow-moving inventoryStock that turns once every three years ties up cash, takes space, and eventually becomes dead. The ERP already knows which items. Nobody has asked it.
- Leak 16 · SuppliersUnclaimed vendor returnsMany suppliers allow an annual return of slow stock, often a percentage of purchases. The window passes. The stock stays on the shelf.
- Leak 26 · InventoryReturns sitting unresolvedA pallet of returns in the corner of the warehouse. Some restockable, some for the supplier, some scrap. All of it counted as nothing, or as full value, depending on the day.
- Leak 40 · DataPoor substitute and cross-reference dataThe customer asks for a competitor’s part number. The rep asks the product manager, who checks a catalog, who calls the supplier. Two days later the customer has bought it elsewhere.
Let’s start with one thing.
What would better performance look like?
Bring a result you want to improve, a symptom, or a workflow you already understand. You do not need to know the bottleneck yet. We’ll help choose what to investigate first.
No transaction files needed for the first conversation.