---
title: "How Distributors Can Reduce Expiry Losses to Below 0.1%"
description: "Expiring, damaged, or expired products are a major headache for distributors, often consuming up to 50% of their net profit. To address this, New Distribution invited Mr. Li Feng, Executive President of Anshan Hongye Hengda Trading, to share how his company controls expiry losses to below 0.1% on annual sales of 300 million yuan."
author: "李锋"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2020-04-11"
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---

# How Distributors Can Reduce Expiry Losses to Below 0.1%

> Expiring, damaged, or expired products are a major headache for distributors, often consuming up to 50% of their net profit. To address this, New Distribution invited Mr. Li Feng, Executive President of Anshan Hongye Hengda Trading, to share how his company controls expiry losses to below 0.1% on annual sales of 300 million yuan.

Expiring, damaged, or expired products are a major headache for every distributor. With annual sales in the tens of millions, handling damaged or expired goods can cost over a hundred thousand yuan each year, equivalent to more than one percentage point. Since a distributor's net profit is typically between two and five percentage points, this means that damaged and expiring products alone can account for up to 50% of a distributor's profit.

Of course, many distributors want to reduce expiry losses and have introduced various systems and incentives. But often, they fail to identify the true sources of expiry losses and how to control them.

To address this issue, New Distribution invited Mr. Li Feng, Executive President of Anshan Hongye Hengda Trading, to discuss how his company manages expiry control, achieving less than 0.1% of expiring, damaged, or expired products on annual sales of 300 million yuan.

> **1. Procurement: Ordering without data, relying on gut feeling;**
>
> **2. Warehouse: No management, no dedicated personnel;**
>
> **3. Sales: Blindly pushing stock, delaying terminal inventory handling;**
>
> **4. Policy: Return/exchange policies exist but are not enforced;**
>
> **5. Brand side: Malicious stock-pushing when sales targets are not met.**

Many distributors believe that expiring products are caused either by ineffective salespeople or by brand owners maliciously pushing stock. While these are important factors, they are not the whole story.

In my view, the core causes of expiring products are the five aspects above. Every distributor can conduct a self-check against these five items. I will explain the potential loopholes and corresponding solutions for each.

**-01-**
**Procurement: Ordering without data, relying on gut feeling**

Many distributors, when the warehouse is short of stock, only think about buying and selling, but do not know how much to order reasonably at this stage. Without standards or data, they place orders directly. For example, if they can only sell 500 cases this month, but seeing good past momentum, they order 1,500 cases at once, leading to products being sold over three months.

How to solve?

Procurement quantities should be based on data. Focus on two data points and two key factors: **First, sales from the same period last year; second, month-over-month sales; third, delivery lead time; fourth, special needs this month.**

Usage notes:

**1. The above table is just a reference to prevent large deviations or mistakes in ordering, such as ordering 1,500 cases when only 500 are needed. In reality, distributors also need to consider market conditions, brand owner policies and rebates, and safety stock management.**

**2. Special needs refer to whether there are promotional activities or new product launch events this month; month-over-month sales is a reference to help predict overall growth trends.**

**3. Order lead time ensures product freshness. According to statistics, if product dates are not fresh at retail points, sales can drop by 10%-20%.**

**-02-**
**Warehouse: No management, no dedicated personnel**

First, warehouse management lacks batch management and does not follow the first-in, first-out (FIFO) principle. When shipping, they pick whatever is closest or most convenient. For example, a customer orders 30 cases of beer, and the warehouse ships products from three different dates.

At the same time, there is no dedicated person tracking expiring products on a regular cycle. Setting up a system without assigning responsibility means it won't be managed well. Products are left in a corner of the warehouse, and only when the pile becomes obvious do they think about handling it. By then, it's too late.

How to solve?

**Establish a robust FIFO system in the warehouse. Distributors with the capability can use computers for inventory entry and batch management. If no software is available, use A4 paper to label standards.** For warehouse staff, add responsibilities for categorizing returned products and promptly handling damaged boxes.

**When sales reach tens of millions, distributors can assign an office clerk to manage expiring products part-time, using a table** (product name, production batch, expiry date, cost price, handling plan, and resolution time), **with dedicated tracking to quickly redistribute returned products to salespeople or appropriate channels.**

Example table:

Usage notes:

According to the table above, **product production date is July 1, 2019, expiring December 31, 2020, with 100 cases in stock. On March 24, the distributor assigns each salesperson a target quantity for handling expiring products based on their territory and ability. At the same time, the distributor sets a minimum selling price and sales commission, and specifies the deadline for resolution.**

Without follow-up and inspection, all systems are zero. The office clerk should submit the above report weekly to the distributor or sales manager, who then breaks it down to each salesperson. Track again in the next cycle; if not sold, there's a problem. Weekly processing can greatly reduce or alleviate the pressure of handling expiring products.

**-03-**
**Sales: Blindly pushing stock, delaying terminal inventory handling**

**Some salespeople blindly push stock due to personal sales targets and promotional tasks.** For example, when a distributor launches a phased incentive policy, a salesperson might push 150 cases to a terminal that can normally only sell 50, just to earn the monthly bonus. Or they push new products to mismatched target outlets. As a result, the goods are distributed but the terminal can't sell them, leading to returns.

**When terminal customers request exchanges, salespeople delay and don't handle it.** During daily visits, they don't strictly follow the eight-step visit procedure, don't check product dates, and even worse, when the terminal owner says, "These products aren't selling, can you help adjust?" the salesperson verbally agrees but never does it, fearing trouble or company punishment. This creates a vicious cycle.

How to solve?

First, **for new product launches, manufacturers offer strong incentives, but distributors often don't control the quantity. At Hongye Hengda, we control new product distribution.** For example, when launching a mid-to-high-end new product, we limit terminal customers to a maximum of 4 cases per order; if they order 6, the order reviewer won't approve.

For new product distribution, the key is not just distribution but using sales tools and good display from the start. By controlling the upper limit, terminal customers won't feel too much pressure.

**For malicious stock-pushing, distributors have original order records. Check the original records.** At Hongye Hengda, when a salesperson distributes products to terminals, if the customer can't sell within 4 months from the invoice date, the products are returned to the company's main warehouse. If not sold after 4 months, they are returned to the salesperson's personal shelf in the warehouse; the company won't handle them, and the salesperson must deal with them personally.

For example, Salesperson A delivers 4 cases of March products to a terminal. If returned by July, they go to the main warehouse (if the date hasn't passed one-third of shelf life, a dedicated person tracks and redistributes to all salespeople within 1 month). If returned after July, they go to Salesperson A's personal shelf. Additionally, salespeople must submit a reason for returns; without a reason, returns are absolutely not accepted.

**If a distributor has a large annual return volume, set a return rate limit. For example, in 2019, the company's overall return rate was a fraction of a percent, so set a red line.** In 2019, the distributor lost 400,000 yuan on returns. Calculate the proportion and assign the return responsibility to individual salespeople; those with no returns can receive corresponding rewards.

Also, if there are customer complaints, fine 500 yuan per complaint. When setting any system, distributors need to prepare for the worst and mitigate risks.

**-04-**
**Policy: Return/exchange policies exist but are not enforced**

Without strict return/exchange management, even if policies are in place, they are not strictly enforced for various reasons. Over time, the management system has little effect on salespeople. Those who don't comply are not penalized, eventually forming bad habits.

How to solve?

First, make the rules clear and penalties explicit. Below is an example of Hongye Hengda's return policy:

Policies are the minimum red line. In daily work, distributors should train and reinforce salespeople's management of terminal inventory age, especially for stores with promoters. If scientific and good promotional incentives are set, returns can be reduced to zero.

A core principle: **Try to handle products at the terminal as much as possible; don't return them. From return to warehouse to re-issuance can take half a month, plus possible damage during handling. Therefore, it's recommended to directly reduce prices at the terminal or offer gifts to handle expiring products.**

**-05-**
**Brand side: Malicious stock-pushing when sales targets are not met**

Brand owners often set sales targets for distributors. If not met, there may be penalties or reduced market investment. To meet targets and earn rewards, distributors sometimes pay for goods and store them in the warehouse even when sales are difficult. Combined with poor front-end sales, expiring products accumulate, and inventory interest costs rise.

How to solve?

**Since a contract with the brand owner is signed, distributors should immediately transfer the target to the market, breaking it down to each salesperson and each customer.** Don't keep it in the warehouse. Inventory should be with customers, not in the warehouse.

In my research, I found that many products become expiring not because they can't be sold and are returned, but because 30% of the goods are simply left in the warehouse and expire there, leading to heavy losses.

Many distributors "bite the bullet" and stock up, but considering their own margins, they are reluctant to invest in the market. Instead of paying interest on inventory, it's better to invest that interest money into market building, such as promotions and displays, to move goods quickly.

Let's calculate: if you have 5 million yuan in goods, at 0.8% monthly interest, you lose 40,000 yuan per month. Better to invest that 40,000 yuan into sales process metrics; the sales situation might be different. If a distributor must stock up due to sales targets, calculate the inventory interest cost and turn it into market expenses and employee incentives. Compared to letting it "sleep" in the warehouse, this not only reduces losses but also builds the market.

**Summary:**

**The above is my experience from years of practice, and it's the result of trial and error at Hongye Hengda. I suggest distributors combine these insights with their own situations to find targeted solutions, minimizing expiry losses and maximizing profits.**


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Contact: zhaobo258@gmail.com · +86 158 5481 7671