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Is it a good idea to allow my supplier to liquidate excess stock to get money from it as scrap?

Posted: 2011-03-22

Full Question

My supplier has some extra stock from my order. They said they would like my authorization to liquidate it and get some money for scrap. Is this a good idea?

Answer

First off, congratulations on finding a supplier honest enough to tell you what they are planning to do with your extras.

If the goods are already in their finished form and have more value as a final product rather than scrap, it is a bad idea to allow your supplier to liquidate your stock as they see fit because it may very well end up being sold rather than recycled and that could have gray market implications. For example, what if the "recycler" doesn't scrap it, but rather sells it to an exporter who then ships into your market. Maybe the supplier knows this will happen, maybe they don't, but either way, a bunch of rejects could in theory end up cannibalizing your market rather than going to the scrap heap.

Here are a few suggestions.

  • Have the terms of your contacts and purchase orders clearly state what will happen to scrap and extra stock. Have an agreement before production even starts!

  • If you do agree to having it scrapped, you need some proof it was destroyed or recycled. You may need to hire an independent 3rd party if you can't make the trip yourself. Very important if you have intellectual property like a famous brand or innovative product to protect.

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