Daniel Fritsch 16 February 2019 3 min read What's in this article? What is obsolete stock? Why is obsolete stock a problem? Why do businesses have stock obsolescence? Helping prevent excess and obsolete stock Using automation to improve obsolete stock management What is obsolete stock? Obsolete Stock refers to items that have been without demand for a sustained period of time. This is usually because they have reached the end of their product lifecycle, so sales die out or because the items are no longer used in their supply chain. Why is obsolete stock a problem? Obsolete stock can be problematic for businesses, for a number of reasons: It costs money to store, increasing carrying costs It absorbs working capital that could be spent elsewhere in the business (and looks bad on the balance sheet) It’s often sold at a lower net resaleable value or written off altogether, affecting profit margins Why do businesses have stock obsolescence? Stock obsolescence is usually caused by poor demand forecasting and inadequate inventory planning and purchasing. Companies that haven’t accurately spotted a decline in demand and adjusted their stock replenishment policies accordingly, will see excess stock build up in their warehouses. As demand disappears altogether these items will become obsolete. Surplus stock can also be the result of quick changes in consumer trends, fashion or technology, or the market may simply reject a product. In all cases effective demand forecasting and inventory management processes can prevent this happening. Many companies use enterprise resource planning (ERP) or warehouse management systems (WMS) to manage their stock. Whilst these platforms will have some basic forecasting and purchasing functionality, most lack the sophistication to track stock as it moves through its product lifecycle or alert users when they have excess stock to prevent inventory obsolescence. Many users resort to excel spreadsheets, but these can be time-consuming to create and keep-up-to-date, and can lead to inaccuracies. Helping prevent excess and obsolete stock So, what can be done to prevent the above situations happening in the first place? Here are some tried and tested ways to reduce excess stock in your supply chain and help prevent it becoming obsolete. Track items through their product lifecycle Make sure you can track each inventory item through its product lifecycle and monitor it’s consequential demand pattern. This allows you to identify products coming to the end of their lifecycle and beginning to experience negative demand e.g in a continuous decline, or lumpy demand e.g periods of low and no demand. Be careful, make sure that these ebbs and flows aren’t a simple case of seasonality! In the world of accounting and finance, items with slowing demand are called ‘slow-moving’ items. It’s important to carefully monitor the stock levels of these items and their associated demand, so you can pinpoint any excess inventory (when available inventory is much higher than forecasted demand) and ‘take action’ before any items reach obsolescence. Act before excess stock becomes obsolete ‘Action’ can come in a number of forms: You can adjust your reordering parameters to match demand and reduce your stock levels down You can try to accelerate sales with the help of your marketing and sales teams You can redistribute surplus stock from one warehouse where demand is low, to another, where it may be much higher With good inventory policies in place, you can aim to avoid stock obsolescence altogether. Potentially you’ll still achieve a respectable profit margin if you can sell the goods at a reasonable price, or at least mitigate damage to your bottom line. Using automation to improve obsolete stock management Inventory management systems do a great job of tracking inventory movements along the supply chain, many in real time. Unfortunately, they often fall short when it comes to demand forecasting and recommending what stock to order and in what quantities. This makes it difficult for inventory planners to prevent excess and obsolete inventory occurring. More and more businesses are, therefore, adding an inventory optimisation tool, such as EazyStock, to their ERP or WMS systems. EazyStock tracks every SKU along its product lifecycle so excess stock and items with declining or lumpy demand are identified with plenty of time to take action. EazyStock dynamically adjusts demand forecasts, stocking policies and reordering parameters to prevent over-stocking. As products reach the latter stages of their lifetime, stock levels are reduced accordingly. With replenishment parameters, such as safety stock, reorder points and reorder quantities automatically updated, inventory planners no longer need to spend hours crunching numbers and hoping for accurate results. Instead, they can focus on acting on the data and spending time of more strategic activities. If you’d like to assess the ‘health’ of your inventory and your stocking policies, simply download our Inventory Health Self-Assessment below, or for a demo contact us today. Share Daniel Fritsch 16 February 2019 3 min read Sign up for the EazyStock Newsletter Stay on Top of the Latest News, Trends, Tips, and Best Practices for Supply Chain Management, Inventory Optimisation, Replenishment & Purchasing, and Demand Forecasting with Our EazyStock Newsletter.