Inventory management is never easy but solving excess product storage and disposal can create additional headaches.
While identifying five causes Gary C. Smith, president of the National Association for the Exchange of Industrial Resources offers a gifts-in-kind organizations, offers a cure for many inventory headaches.
To start Smith identifies what some inventory managers do to add to their headaches.
- Make like an ostrich…put your head in the sand! Ignore a problem and it will surely go away, right? Just put off decisions about what to do with your slow-moving inventory. You can deal with the growing inventory, expenses and taxes later.
- Lease additional space: Out of sight, out of mind. Lease additional warehouse space and spend your company’s money by contributing to the profitability of storage and logistics warehouse companies.
- Liquidate: Go ahead, sell excess inventory at a dime or pennies on the dollar. Or better yet, give it away to employees as a bonus, and watch it pop up on eBay or in other secondary markets. Then wonder why old inventory is competing against your company’s efforts to sell current stock, why everyone seems to be waiting for your next giveaway or price reduction, or why you’re fielding calls from unhappy customers because your inventory is cutting into their sales and profit margins.
- Continue selling it: Do the same thing over and over again—maybe you’ll be the first person to get a different result. Merchandise is outdated and stale, sales are stagnant, but hey, maybe things will pick up.
- Send it to a landfill: You must really be looking for a public relations headache. Because when the media finds out that your perfectly good merchandise is taking up space in a landfill, you’ll have a doozey.
Smith offers a solution that turns a problem like excess inventory into a positive—for the company’s reputation and bottom line.
According to Smith, IRC Section 170(e)(3), a little-known section of the tax code, allows Regular C Corporations to donate excess inventory and receive an up to twice-cost federal tax deduction.
He adds donating your excess inventory to a gifts-in-kind organization not only will significantly reduce your tax obligation, it will get your excess, non-selling products into the hands of qualified, deserving nonprofits across the country.
Gifts-in-kind organizations solicit donations of valuable, new merchandise from American corporations and redistribute that merchandise to their members, which include schools, churches, government agencies and other nonprofit organizations in need of supplies.
Smith argues the donation process is easy, secure and flexible, and many gifts-in-kind organizations provide a range of free services to donors.
- They can accept shipments of supplies ranging from one box to dozens of truckloads, and in many cases, the freight charges to ship a donation to a gifts-in-kind program also are tax deductible.
They also offer a great solution for companies that are consolidating warehouse locations. Gifts-in-kind organizations keep detailed records of merchandise donations and redistribution, so when tax time rolls around, companies know exactly who received their products and how much they received.
In addition, provisions in the tax code stipulate that donated product cannot be resold, bartered or traded and must be used in a manner consistent with the charity’s mission, which means your product won’t find its way back to the open market.
Companies also gain brand protection through their donations. The allocation system for gifts-in-kind donations ensures that the products are distributed across a thinly closed market, providing protection from the brand and product devaluation that can occur when extra inventory ends up in the open market.
Typical items donated include office supplies, class materials, clothing and shoes, maintenance items, tools and hardware, toys and games, computer software, sporting goods, books, tapes, CDs, arts and crafts, personal care items, holiday and party items, janitorial supplies and more. Many companies also take advantage of gifts-in-kind programs to manage items such as underperforming SKUs, discontinued models or colors, seconds, buybacks and returns.
Gary C. Smith is the president of the National Association for the Exchange of Industrial Resources (NAEIR), a Galesburg, Illinois gifts-in-kind organization. For more information, contact NAEIR at (800)-562-0955 or firstname.lastname@example.org, or visit www.naeir.org.