Why does defective goods inventory matter in logistics?
Defective goods still occupy warehouse space, tie up capital and distort inventory counts if they are not tracked separately. Without a clear DGI record, retailers can oversell items they cannot actually deliver or overlook losses that should be claimed from suppliers or carriers. Separating defective stock also supports faster supplier returns and more accurate reporting on product quality.
How does defective goods inventory work in logistics?
Defective items are identified during receiving, picking, quality checks or customer returns, and are scanned into a separate inventory location or status in the warehouse management system. Each item is recorded with a reason code, such as transport damage, manufacturing fault or customer return. The stock is then routed for one of four outcomes: return to supplier, repair, refurbishment or disposal. Transport of defective goods to repair centres or back to suppliers is often arranged as a separate shipment.
Most common industries that manage DGI
- E-commerce fulfilment centres
- Retail distribution centres
- Electronics and appliance distribution
- Fashion and apparel return processing
- Automotive parts and aftermarket distribution
- Furniture and home goods retail
Example in practice
A consumer electronics retailer receives 500 coffee machines from a supplier in Italy. During receiving at its Hamburg warehouse, staff find 35 units with cracked water tanks caused by transport damage. The 35 units are scanned into a DGI location with the reason code “transport damage,” so they are excluded from saleable stock. The retailer files a damage claim with the carrier and arranges a dedicated van to return the 35 units to the supplier’s repair centre in Milan. The remaining 465 units go on sale immediately, and the damage claim is tracked against the shipment’s booking number.