© Educational Assistance Ltd. 2003 How to Put Your Excess Inventory to Work for You! A Guide to...

© Educational Assistance Ltd. 2003

How to Put Your Excess Inventory to Work for You!

A Guide to Managing Excess Inventory


Excess inventory is inevitable

The market for business surplus is estimated at $350 billion annually (World Bank abstract)

Overruns, inaccurate forecasts, new products, returned, discontinued retail items

Downsizing, relocations & mergers can generate excess assets too


Excess Inventory Leads to Inefficiency and Higher Costs

Non-productive material management Wasted warehouse space Utility expenses Insurance and Taxes Opportunity Cost (-) impact on bottom

line


Traditional Disposal Options

Reverse Logistics – The process of planning, implementing and controlling flows of raw materials, in process inventory, and finished goods, from the point of use back to a point of recovery (vendor).

Sell Excess Inventory – The process in which product is remarketed as a means of recapturing costs.

Recycle Inventory – The process in which the structure of a product is destroyed in order to recapture its materials.

Donate Inventory – The process of giving inventory to a not-for-profit organization.

Waste– Disposal of inventory through traditional landfills.


Costs/Benefits of Disposal Options

Reverse Logistics

Sell Excess inventory

Recycle Inventory

Donate Inventory

Waste

• Financials• Bottom Line• Employee Costs• Insurance/Taxes• Opportunity Cost• Space Utilization

• Operations• ROA• Re-marketing

control• Product Liability


Reverse Logistics

Benefits:• Does Not Re-Enter

Distribution Channels

• Most Predictable• Reduces Product

Liability

Costs:• Re-Stocking Fee• Transportation

Charges• Not 100% Removal• Personnel Costs• Turn-Around Time• Opportunity Costs


Sell Excess Inventory

Benefits:• Some $ recovery• May be able to

Control Distribution Channels

Costs:• Fragmented market• Turn-Around Time• Opportunity Costs• Fees for Sale• May Interfere with

Distribution Channels

• Product Liability• Very low $ potential


Sample Current Liquidator Prices

Marilyn Monroe microphone radio $5.00 each (retail value $29.95)

42 piece art set - 8% of retail Pallet of 2 ton prof. truck/van jacks 4000 lb capacity.

$ 479.99 Ocean prince sardines - $.25 each 2 truckloads of excess paper products bought for

$7,000 listed for sale at $21,000


Recycle Inventory

Benefits:• 100% Removal• Environmental

Stewardship• Positive Corporate

Image• Avoid penalties &

fines

Costs:• Recycling Fees• Transportation Fees• Potential Liability

from Environmental negligence


Computer Recycling

Obsolete computers contain: lead, mercury, cadmium, chromium, lithium, nickel and zinc

If mismanaged (not-recycled) these materials can be harmful

Also, precious metals go un-recovered Sample recycling cost: $0.15/pound “Take-Back Programs” Regulations regarding patient data


Landfill/Waste

Benefits:• “Out of Sight – Out of

Mind”• 100% Removal

Costs:• Waste Management

Fees• Environmental

Negligence• Creates Negative

Corporate Image among employees/outsiders

• Liability (HIPAA)


Donate Excess Inventory

Benefits:• Lower Tax Liability • 100% Removal• Positive PR• Environmentally

responsible• After-market control

Costs:• May incur shipping

costs• Initial Effort to

Identify Suitable Not-for-Profit Partners

• Misunderstood Option


How to select a recycler or charity

Excess Inventory Recycler

- State Local Permits- Fees- Disposal Certification

Charitable Organization- Mission & Experience- After-Market restrictions- Efficiency & Resources- Ability to offer 170 e (3)

above-tax write off


Tax Considerations

Inventory/Product Donations are also called in-kind donations

IRS rule 170 e (3) can help increase deductionCost basis: $500FMV : $1000

170 e (3) : $750 write-off or ½ difference +

C and sub-chapter S corporations tax status Receiving charity cannot dispense tax advice


Excess Inventory Management Resources

www.epa.gov/epr (Extended Product Responsibility Page)

www.safety-kleen.com (electronic scrap from clients only)

www.surplus.net (liquidators network) www.equipment.net (specialty excess) www.guidestar.org (non-profit network) www.irs.gov(tax issues)


For additional help

Contact EAL Corporate Development Director Call 630-690-0010 email us at [email protected] visit us on the web at www.ealworks.org

© Educational Assistance Ltd. 2003 How to Put Your Excess Inventory to Work for You! A Guide to...

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