How do you deal with dead stock at your distribution company? For Micah Effinger, currently manufacturing supervisor at Alcon, the popular tactic of starting upstream with analytics and forecasting to optimize inventory wasn’t going to be enough. For his purposes, starting downstream and getting into the weeds with the dead stock was the way to go.

At the time, he was a sales technician at Summit Electric Supply, a wholesaler of electrical products, and focused on moving dead stock and improving inventory processes. The problem: his company was sitting on 15 percent dead stock to 85 percent active stock. For example, a single branch with revenue of $9 million had $2 million worth of dead stock sitting on the shelves.

Fortunately, while this inventory process improvement was unfolding, Effinger was enrolled in the Texas A&M Master of Industrial Distribution (MID) program. He was drawn to the program because he felt it could arm him with tools to level up his process improvement skills. He also wanted to hone his ability to demonstrate the value of new processes to leadership. 

“It’s hard to change old habits,” Effinger says. “You need to hit home with your projects so company leaders can see the return on investment (ROI) and an increase in revenue. That’s what drew me to the MID program; the opportunity to be a game-changer and disruptor in the companies I’ve been with.”

A cornerstone of the MID program is the Capstone Project, which requires that students design and execute an improvement initiative at their own companies as part of their educational experience. Effinger recognized that the imperative to improve inventory processes and move the dead stock at his company was the perfect focus for his project. 

Understanding a Problem’s Scale

It’s difficult to know how you’re performing until you benchmark your company against industry averages. Effinger found his company was far from average when it came to dead stock. As part of his Capstone Project, he studied other companies’ inventory ratios and found they had more ideal numbers: around 98 to 99 percent active inventory. 

“That statistic motivated me to improve our ratio,” he explains. “My goal was to bring it up to 90 percent, and I was trying to get 8 percent recovery out of all locations.”

To design a path toward this goal, he assessed what he was working with:

•  Existing technology wasn’t being leveraged. The electrical wholesale distributor wasn’t using its technology to its full potential. It could get more functionality out of SAP and the website.

•  Dead stock was lost and wasted in the warehouse. As it was, dead stock was spread throughout the warehouse. In many cases, no one knew what was dead or where it even was. It would be moved around to make space for other inventory, throwing off the accounts and making it impossible to find. 

•  Salespeople would need support changing tack. The sales team did not have a strategy to move dead stock. Incorporating one into their routines would require additional, specialized training. 

Getting Down to Details with Dead Stock

Effinger set to work, focusing on the branch he worked out of. “I was working upstream, starting at the issue of dead stock and backtracking,” he recalls. 

To start, he needed to categorize the SKUs of the dead stock — a total of about 3,100 SKUs — based on industry. Effinger ran a business intelligence (BI) report from SAP and divided the stock into industrial, commercial and residential categories. Once this was complete, he found that commercial and industrial had the largest share of dead stock. Commercial had the highest number of SKUs, and industrial had the highest cost — more than half a million dollars. 

From there, Effinger assessed stocks by category to understand why those SKUs weren’t moving. That way, he could determine the most effective selling strategies for them. 

“Industrial and commercial are constantly coming up with new technology, so it falls off a lot faster,” Effinger explains. “So, those are the two highest categories we focused on.”

For example, he found the company was buying expensive equipment for industrial, such as transformers, and salespeople weren’t moving them. They would fall by the wayside and become dead stock.

Designing New Processes to Move SKUs

With this information, Effinger established a managerial framework outlining key processes for strategically selling the inventory: bundling, clearance and liquidation. It required the company to use more technology functionality, retrain the salesforce and reorganize the warehouse.

“What we found once we started is that it’s all about talking about the dead stock, bringing it into the light and making everyone aware of it,” he says.

1. Technology-enabled sales strategies

Effinger directed salespeople to reach out to customers and create bundles for industrial and commercial categories. “Through bundling, we offloaded about 75 percent of our dead inventory,” he says.

He also leveraged SAP functionality. Before, salespeople didn’t have a way to search for dead stock in the system. “SAP can do pretty much anything you want it to do,” Effinger notes. “We created a dead stock tab and, every month, we’d run a BI report, find the dead stock and move it to that tab so salespeople could easily see all the dead stock SKUs. They could search through that before purchasing more product.”

For residential dead stock, Effinger leveraged the website. “I created a clearance tab for customers,” he says. “Our customers are working on projects and trying to stay under budget. They would ask salespeople about discounts and sales. With that clearance tab on the website, salespeople can look at what we have on sale and offer that to customers. Our counter sales could also use this to offer discounts to people walking in.”

Effinger’s analysis revealed SKUs that spent more than 30 days on the website lost traction. So, his framework involved moving items to liquidation after 30 days on the website. 

Another tactic Effinger used to move residential dead stock involved reaching out to small businesses and selling stock to them in bundles. Those businesses could gain more success selling residential products in a B2C environment. The company keeps a record of bundles sold in case of another increase. 

Leveraging technology was essential to Effinger’s ultimate success. He finds many companies would benefit from analyzing their existing technology and finding ways to get more out of it. 

“SAP has a capability where if a SKU gets two hits or less in 12 months, it’ll automatically add it to the dead stock,” Effinger explains. “And if you have a high-traffic website, advertising discounts is critical to move that out of your inventory and get your customers engaged. Leveraging that to your advantage will grow customers and help your inventory.”

2. Specialized sales team training

Effinger needed to train the sales team to not only use new processes to move dead stock but to think outside of the box, seek alternative solutions and become more consultative with customers. For example, if a customer asked for a specific back-ordered color item, the salesperson could suggest an alternative from the dead stock that is identical in every way except color — and comes at a discounted price for the customer. 

He also wanted salespeople to feel empowered to suggest alternative brands to customers’ preferences when it made sense. “Customers would want a specific part, but an off-brand would be the exact same in function and warranty,” he says. “It’s about convincing and educating the customer that the off-brand part will do the exact same thing.”

As part of this training, Effinger developed a dedicated eight-hour presentation and course. He brought in representatives from different brands of the same product types to discuss their products with the sales team. 

“When you get the representatives in there, the salespeople start to realize it’s about customer preference,” he says. “When we have four in stock of a different product and they can get it on discount, they can educate and convince the customer. They have a different outlook on it.”

3. Visibility in the warehouse

To ensure dead stock didn’t get lost and discarded, Effinger created designated shelving in the front of the warehouse, brought those SKUs forward and labeled them. That way, it was easy to find if a salesperson sold one of those SKUs. 

“Any time anything fell into dead stock, it would go on that shelf,” he says. “Then, there was no more searching for it. That was a big part of the project. I found that for anything visible, you can create a process for it. You want to make everything visible to the salespeople.”

The Crucial Role of an Industry-Specific Graduate Degree

Before Effinger moved to a different company, the ROI of his Capstone Project was that the company was able to offload 75 percent of the dead stock. It gained $1.4 million back after accounting for the cost of training and other expenses related to the project. Effinger also exceeded his goal for the inventory ratio, raising active inventory to 93 percent. 

As part of the project, Effinger created a new role to ensure continual ownership and governance over the project. That person can continue to drive the momentum for moving dead stock.

Effinger credits the MID program and his professors with the success of his Capstone Project and his strong process improvement skills. 

“I was fortunate enough to have Dr. Malini Natarajarathinam,” he explains. “She specialized in my project focus and has helped multiple companies overcome inventory issues. Her influence and ability to guide me was incredible.”

He appreciates that his professors helped him be realistic about his project, so he had a viable pitch when he approached leadership. “Their influence and industrial knowledge are absolutely incredible,” Effinger says. “They helped bridge the gap between fantasy versus reality: This is what I would like to happen, but this is what could happen. And when I finished the project and implemented it, it happened.” 

Effinger also appreciates studying other companies through the MID program. His experience solving problems for real companies with the program has given him the confidence to be a change-maker.

“This was not about grades,” he said. “It was all about real solutions for real companies and real problems. You had to be innovative and a disruptor. It was so influential because, even now, I work for Alcon and that’s what I do. I improve processes.” 

Confirming Your Potential as an Industry Disruptor

Effinger encourages others not to limit themselves and to be confident in their potential. 

“Look at companies in a different way and never limit yourself to thinking all innovation is gone,” he says. “I thought that for the longest time. However, that’s not the case. There’s always something new, and it’s for each of us to figure out. That’s what the MID program engrained in me: finding a better way to improve people’s lives, processes and your company. It was a real eye-opener for me.”

As far as prospective students of the MID program, Effinger says don’t doubt yourself — and go for it. 

“I didn’t think I could do it,” he recalls. “It’s that intimidation factor. They told me I’d have to do a Capstone Project that would take a year to a year and a half, and I’d have to find new processes and innovation with my company. That’s a shock factor, and you don’t think you can. However, once you get in, start getting comfortable, see all the professors helping you, and get down to the nuts and bolts, it becomes fun and enjoyable.” 

Micah Effinger is a Manufacturing Supervisor at Alcon, and a member of the Master of Industrial Distribution (MID) class of 2022.