Overstock, Slow-Moving and Dead Stock: How to Tell Them Apart

"We have too much stock" covers three different problems with three different fixes. Lumping them together is how a distributor ends up discounting an item that would have sold through next month, while a truly dead SKU sits for another year.

Start with days of stock

Days of Stock = Available Stock ÷ Average Daily Demand

Days of stock answers "at the current pace, how long will this last?" Compute it per SKU per warehouse — a company-wide figure hides a warehouse that is drowning next to one that is short. Average daily demand comes from the trailing 90 days of outbound movement, as in the reorder point article.

Three different problems

• Dead stock: stock on hand and nothing shipped out in 90 days. Days of stock can't even be calculated, because demand is zero. Fix: decide on purpose — return to vendor, liquidate, or keep as a deliberate service part — and stop reordering it.
• Slow-moving: it does sell, but at the current pace the stock lasts more than about six months (over 180 days of stock). Fix: stop reordering until it drops back toward its reorder point; consider moving it to the warehouse where it sells.
• Overstock: demand is healthy, but you are holding more than you need. A practical threshold is safety stock plus 30 days of demand. Fix: delay or shrink the next purchase order rather than discounting.

Classify in order of urgency

Give each SKU-warehouse pair exactly one status, checking the most urgent first so a problem is never hidden behind a milder one:

1. Stock-out risk  available ≤ 0, or 3 days of stock or less
2. Dead stock      no outbound movement in 90 days, stock on hand
3. Slow-moving     more than 180 days of stock
4. Low stock       available below safety stock
5. Overstock       available above safety stock + 30 days of demand
6. Healthy         none of the above

Worked example

Illustrative numbers: a SKU sells 21 units a day, its safety stock is 84 units, and the warehouse holds 1,000 units.

Overstock threshold = 84 + (21 × 30) = 714 units
Days of stock = 1,000 ÷ 21 ≈ 48 days
→ Overstock (above 714), but not slow-moving (under 180 days)
Excess = 1,000 − 714 = 286 units tied up

Multiply the excess by unit cost to see the cash tied up. That figure, summed across the catalog, is usually the number that gets a planning meeting's attention.

Supply Chain Manager applies exactly this classification to every SKU at every warehouse and rolls overstock into one alert showing how many positions are over and how much capital that ties up. To see it on sample data, open the live demo.