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How to Put Your Excess Inventory to Work for You!
A Guide to Managing Excess Inventory
© Educational Assistance Ltd. 2003
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
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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
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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.
© Educational Assistance Ltd. 2003
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
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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
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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
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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
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Recycle Inventory
Benefits:• 100% Removal• Environmental
Stewardship• Positive Corporate
Image• Avoid penalties &
fines
Costs:• Recycling Fees• Transportation Fees• Potential Liability
from Environmental negligence
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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
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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)
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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
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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
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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
© Educational Assistance Ltd. 2003
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)
© Educational Assistance Ltd. 2003
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