How to Manage Obsolete Stock in Your Inventory
- What is Obsolete Stock?
- How to Handle Obsolete Stock Levels in Inventory?
What is Obsolete Stock?
Obsolete Stock is a term that refers to inventory that has reached the end of its product lifecycle. In this stage of the product life cycle, there’s no market demand for the product. The end of the product life cycle is typically determined based on a set period of time with no sales for that specific product offering.
Companies that haven’t forecasted or planned stock replenishment properly, often times are left with large quantities of obsolete stock in their warehouses. Obsolete stock is inventory that sits on a company’s balance sheet as working capital tied up with little promise of a return on investment. In the graph below, obsolete stock is inventory that reaches the end of its declining life cycle stage.
Surpluses of obsolete stock are often the results of an unsuccessful product being rejected by the market, poor demand forecast management as product life cycle stages change or poor inventory management processes across multiple warehouse locations.
How to Handle Obsolete Stock Levels in Inventory?
Do you know how much obsolete stock is being kept on hand in your facilities? Maybe a better question is, do you know the product life cycles of your inventory items and which products are on the decline?
Many companies make the mistake of not liquidating obsolete stock right away. Some companies will sit on the inventory to avoid showing a large write off or expense on the quarterly report. This once large investment, which was supposed to yield revenue and profit all of a sudden becomes a cost and expense to the business! This is never an easy pill to swallow for management, finance or operations.
Once your inventory reaches the obsolete stage of its life cycle, it’s typically too late to take actions that will result a profitable return on that investment. With good inventory policies in place and a better understanding of real customer demand companies can avoid this type of situation all together.
But be warned that if you don’t address obsolete stock today, it will just continue to grow. Don’t let accounting drive poor operating rules. Get obsolete inventory off the books, and utilise that open warehouse space for productive and profitable inventory turns.
If you identify excess stock, which is stock you have too much of on hand compared to your forecasted demand, try to accelerate sales with the help of your marketing and sales teams before it becomes obsolete.
Inventory management systems today do a great job of tracking inventory. To avoid carrying excess and obsolete stock, you need to first optimise your planning, demand forecasting and replenishment processes.
In software solutions like EazyStock, you get all of your key performance indicators calculated and updated automatically so you can actively follow your service level, development of your capital tied up in the stock, backorders, and inventory turnover rate.