The effectiveness of each tool declines.
The number of options decreases, while the cost of using them increases.
When does inventory become excess?
PART II · STAGE 6
Redistribution, managed inventory exit (Outlet), and expiration dates
When does a product become excess? At the moment of purchase? At the moment of delivery? Or when inventory no longer matches the current demand of a specific pharmacy?
The product may have been needed by the pharmacy yesterday. Today, demand is different.
PROMOTION — ended. SALES — slowed. DEMAND — changed.
ASSORTMENT — revised.
Excess inventory is therefore not necessarily a purchasing or allocation error. It is inventory that has become too large relative to current demand and the time remaining to sell it normally.
Is this product excess for the chain — or only for one pharmacy?
LOCAL EXCESS DOES NOT YET MEAN EXCESS FOR THE CHAIN
PHARMACY A — demand has almost stopped.
PHARMACY B — demand remains.
PHARMACY C — demand remains.
The chain sees not three separate inventory balances, but one network-wide resource.
Sales may almost stop in one pharmacy. In another, the same product may continue selling normally. When the chain is viewed as a system, an opportunity appears.
If this pharmacy cannot sell the product in time, can another one?
HOW DOES PRODUCT MOVE BETWEEN PHARMACIES?
Physically, in both modes the product usually passes through the warehouse. The difference lies elsewhere:
What does the warehouse do with the box?
Transfer or return to inventory?
One warehouse — two different roles in redistribution.
MODE 1 — transit through the warehouse: the box is already intended for Pharmacy B and does not enter warehouse inventory.
MODE 2 — return to warehouse inventory: the next destination is determined by actual demand.
MODE 1Transit through the warehouse
PHARMACY Abox already destined for B
WAREHOUSEDOES NOT ENTER
WAREHOUSE INVENTORY
WAREHOUSE INVENTORY
PHARMACY Brecipient is known
MODE 2Return to warehouse inventory
PHARMACY Aexcess inventory
WAREHOUSE INVENTORYENTERS INVENTORY
demand determines the direction
demand determines the direction
PHARMACY BPHARMACY CPHARMACY D
In one case the warehouse redirects the box. In the other, it takes the product back into inventory.
When the recipient is already known and speed matters, transit can be simpler. When the chain wants to preserve flexibility over the next decision, the product returns to warehouse inventory and its destination is determined by the next actual demand.
WHAT DOES REDISTRIBUTION PROVIDE?
Redistribution does not fix demand. It fixes how inventory already purchased is used.
A product that sells slowly at one location gets another chance where demand is higher.
- reduce local excess inventory;
- reduce expiration risk;
- improve availability at another pharmacy;
- accelerate the return of capital tied up in slow-moving inventory.
Redistribution does not create new inventory. It makes inventory already purchased work where demand exists.
One of the author's projects
35 → 25
days of inventory
before implementation
after implementation
Reduction in days of inventory of approximately 29%
Not a universal benchmark — an illustration of how regular redistribution
improves inventory utilization.
Why does this mechanism often fail to operate regularly?
The principle itself is simple: identify excess at one pharmacy and move it to where demand is higher.
The problem begins at scale. In a chain of dozens or hundreds of pharmacies, inventory, demand, sales velocity, and transfer constraints must be continuously matched across thousands of items. Manually, this quickly becomes a difficult and expensive operation.
Automation changes the economics of the process.
What looks like an occasional 'major cleanup' of inventory when done manually can be performed regularly by a system.
Excess inventory then starts moving earlier — while there is still demand for it, rather than when it has already become an obvious problem.
But redistribution also has a limit.
If a product is already excessive not in one pharmacy but across the entire chain, there is nowhere left to move it.
What if there is nowhere left to move it?
This leads to the next step: what to do when the internal possibilities for redistribution have been exhausted.
WHEN REDISTRIBUTION IS NO LONGER ENOUGH
A new product may be ready for launch, but the old one is still occupying shelf space and tying up working capital. Until the old product exits, the assortment has not actually been renewed.
- New product is ready to launch
- Old product is still in inventory
- Shelf space, capital, and assortment capacity are occupied
- New product launch is blocked
Assortment management is not only about introducing new products. It also requires the ability to remove old ones quickly.
TWO MODES OF INVENTORY EXIT MANAGEMENT
Outlet brings selected inventory to a defined target state. The target depends on the situation.
Complete discontinuation
For a product that must be fully discontinued across the chain.
0
inventory
0 by a specified date
by the specified deadline
Goal: free up space for the new product and release working capital.
Return to a normal level
For a product that remains in the assortment but whose inventory is above the acceptable level.
target level
inventory
Goal: reduce inventory to the target quantity and keep it there.
The inventory target can be set for a specific date or maintained on an ongoing basis.
HOW THE OUTLET SYSTEM WORKS
The system tracks inventory and applies the right tools until the target is reached.
- Analysis of current inventory and deviation from target
- Selection of tools (redistribution, pricing, promotion, etc.)
- Monitoring the inventory trajectory
- Adjusting the intensity of actions
- Reaching the target: 0 or the target quantity
An assortment is not renewed when the company decides to introduce a new product. It is renewed when the system can free the space needed for it.
WHY THIS SHOULD WORK AUTOMATICALLY
In a large pharmacy chain, managers cannot continuously track thousands of products that need to be discontinued or returned to normal stock levels. By the time the problem is noticed and a one-off action is launched, old inventory is still occupying space and delaying the new product.
Automation turns inventory-exit management into an always-on operating capability rather than an occasional manual campaign.
FIELD CASE · LAMEL, YEKATERINBURG
How much management time is a company prepared to spend on a product it has already decided to discontinue?
Around 2017, the owner of the Lamel cosmetics chain in Yekaterinburg asked me to visit.
120stores
12category managers
20–40%of their time
As I recall, the chain had about 120 stores and approximately 12 category managers. The owner said he had been trying to solve one problem for two or three years—with consultants and his own IT team.
Category managers were spending too much time manually clearing the remaining stock of discontinued products.
MANUAL CYCLE
AGAIN AND AGAIN
- review inventory;
- move stock between stores;
- decide what discount to offer;
- check what remains;
- adjust the decision again.
Manual work is not a single decision but a repeating cycle
of observation, movement, markdown, and
rechecking.
According to the owner's estimate and my recollection, this work consumed roughly 20–40% of category managers' time.
The problem was not only the money recovered from the sell-through. The main question was how much management time the company was spending on a product it had already decided to discontinue.
He wanted category managers to return to managing categories.
Not toward manually selling through old product, but toward developing the assortment.
FIELD CASE · LAMEL · YEKATERINBURG
FIELD CASE · LAMEL · OPERATING MODEL
The figures on this page relate only to this case: they are the author's recollection and the owner's estimate, not an industry benchmark.
FROM A MANUAL CYCLE TO MANAGING THE TARGET INVENTORY STATE
In the Lamel case, management attention returns to the category, while the routine inventory-exit cycle moves to the system.
BEFORE
The manager personally runs the inventory-exit cycle
1. REVIEW INVENTORY
Where is the excess?
2. MOVE PRODUCT
Where can it go?
3. DECIDE WHAT DISCOUNT TO OFFER
How can the sale be accelerated?
4. CHECK WHAT REMAINS
Did it work?
20–40% of category managers' time
The cycle repeats again and again for different products.
AFTER
The manager sets the mode; the system moves inventory toward the target state
1. DISCONTINUE THE PRODUCT
For a product that must leave completely and free up space for a new one.
Goal: 0 inventory
Deadline: when necessary, by a specific date
2. RETURN INVENTORY TO NORMAL
For a product that remains in the assortment but whose inventory is above the acceptable level.
Goal: target quantity
Mode: reach it by a deadline or maintain it regularly
THE SYSTEM MOVES INVENTORY TOWARD THE DEFINED STATEselects and applies tools, monitors the trajectory, and adjusts actions.
THE DECISION REMAINS WITH THE CATEGORY TEAM · THE ROUTINE MOVES TO THE SYSTEM
WHAT EXACTLY SHOULD REMAIN WITH THE PERSON?
After automation, the person does not disappear from the process. They stop running the cycle and start managing the outcome.
THE PERSON DEFINES
Strategic product decision.
- What should be done with the product? • discontinue it;
• or return inventory to normal. - What is the target state? • 0 inventory;
• or a target quantity. - Is there a deadline? • no hard date;
• or by a specific date.
THE SYSTEM RUNS THE OPERATIONAL WORK
Executes the logic until the target is reached.
- 1 Tracks deviation from the target.
- 2 Redistributes product.
- 3 Applies the prescribed pricing actions.
- 4 Monitors inventory and the pace of inventory exit.
- 5 Adjusts the intensity of actions.
- 6 Returns only exceptions to the person, not every case.
IN THIS CASE
10–15 MINUTES A DAY
The person sets the target. The system manages the trajectory.
Instead of a constant manual cycle.
HOW THE HUMAN ROLE CHANGED
BEFORE
A person inside every decision
Continuously review inventory, move product, change the price, and check the result.
AFTER
The person sets the rule and handles exceptions
Defines the target, controls exceptions, and focuses on developing the category.
Automation frees the person not from responsibility, but from repetitive work.
The decision about what to discontinue remains with the category team. The work of bringing inventory to the target moves to the system.
It was in this project that the principle finally crystallized for me: Outlet is not a discount campaign; it is management of the target, the deadline, and the inventory trajectory.
EXPIRATION DATE: WHEN TIME BECOMES A CONSTRAINT
The expiration-date problem does not begin on the day the product expires. It begins earlier—when the time remaining becomes shorter than the time required to sell the current inventory normally.
Outlet already manages toward a target state and, when needed, a deadline. The expiration date adds a hard external boundary that the company cannot move.
If the product already has a fixed end date, how much time does the company have left to redistribute, reprice, or sell it?
THE LESS TIME REMAINS, THE FEWER THE OPTIONS
An expiration date turns time into a hard constraint.
Enough timeLimited timeCritically little time
Normal sale
There is time to sell at the regular price.
Redistribution
Takes time to select locations, ship, and receive stock.
Pricing actions and promotions
Takes time to prepare and launch the pricing action.
Return to warehouse inventory
Also takes time for logistics and processing.
THE RISK OF WRITE-OFF INCREASES EVERY DAY.
Enough time remainsRemaining time decreasesCritical date (expiration date)
WHAT HAPPENS WHEN TIME IS SHORT?
The probability of write-off increases.
Even with active measures, there may not be enough time to reach the target state.
Starting early becomes more important.
The earlier the system sees the risk, the more options it has and the higher the probability of success.
As the expiration date approaches, manual intervention becomes too slow.
To act in time, the system must identify the risk early and automatically trigger the required actions.
STAGE CHECK · FOR MANAGEMENT
Managing excess inventory is not about clearing stock. It is about how quickly the pharmacy chain responds when demand changes.
- Do we distinguish local excess from network-wide excess?
- Can the system see where the same product still has real demand?
- When do we move stock through the warehouse in transit, and when do we return it to warehouse inventory?
- How long does it take to move product after excess is identified?
- Where does redistribution end and Outlet begin?
- Does every Outlet product have a target and, when necessary, a deadline?
- How much time do category managers spend on repetitive operational work?
- How far ahead of the critical date does the system start acting?
If these questions cannot be answered quickly with numbers and rules, excess inventory is not being managed systematically—it is still being handled manually, case by case.
These questions show whether excess inventory is managed through a real system. As long as the answers still depend on who notices the problem and whether that person has time to address it, the process remains manual and inconsistent. A mature model turns recurring decisions into rules: the system detects the deviation, selects an approved action, and routes only exceptions to a person.
The sooner a recurring decision becomes a rule, the less routine operational work remains for people.
THE SYSTEM MUST ACT WHEN RISK FIRST APPEARS - NOT ON THE CRITICAL DATE
1RISK DETECTEDthe system detects a deviation
→
2ACTION WINDOWoptions are still available
→
3RULE TRIGGERS ACTIONdo not wait for the critical date
→
4CRITICAL DATEthe threshold has already been reached
TRANSITION · FROM CONSEQUENCE TO THE ASSORTMENT DECISION
EXCESS CAN BE MANAGED QUICKLY. BUT SOME PROBLEMS BEGIN BEFORE THE ORDER.
Inventory balancing has almost no direct effect on the company's purchasing power.
It improves control over already-purchased inventory, capital, and response time.
If demand changes, the network can respond faster with inventory it has already purchased.
Capital and management attention become less dependent on a local change in demand at one location.
AFTER PURCHASE
Where should the excess already created be moved, and how quickly should the network respond?
→
BUT EARLIER
BEFORE THE ORDER. BEFORE THE WAREHOUSE.
Which products should be in the assortment at all, what customer need does each one address, and how should they work together?
If part of the problem begins before the order and the warehouse, is managing only its consequences enough?
No. The next capability is to design the category, not individual stock positions.