Companies are unburdening their shelves of obsolete inventory and reducing their taxes
Yardley, PA August 27, 2003 Prophet 21 Trading Partner Connect, an Internet trading network, announced today that its product is saving distributors thousands of dollars in taxes every year by eliminating obsolete inventory.
The company said that distributors often pay for dead and slow-moving stock several times first when they purchase it, and then for the carrying costs.
In addition, distributors in many parts of the country must also pay local and state inventory taxes, even on stock that has collected dust for years. "It doesn't make any difference if it's dead stock or not," said Joe Bagley, general manager of Massasoit Tool Co. in Rhode Island. "They still tax us on it."
"Amid shrinking margins and rising carrying costs, distributors especially those taxed on what's in their warehouse must find ways to keep their inventory levels low," said Chuck Boyle, Prophet 21 president and CEO.
Using Trading Partner Connect to establish online trading relationships with other distributors, Bagley said he sold his dead stock to distributors in other parts of the country who bought the items at a discounted rate to meet their customers' demand. In addition, Bagley used the Internet trading network to source items, reducing the amount of safety stock he needed to carry. The net result, he said, was a 12 percent drop in inventory levels over a two-year period.
"You don't have to keep quite so much stock on hand because you can usually get whatever you need pretty quickly from one of your trading partners," Bagley said. "And, you can usually sell the inventory that you're not moving to another distributor who is even if he or she is halfway across the country."
Bagley estimated that he saves about $5,000 per year on his tax bill because he no longer pays levies on the dead, slow-moving, and safety inventory he once carried. "That's a few thousands dollars a year that we can re-invest in our business," Bagley concluded.