It’s a common misconception that inventory cannot go to waste. Mature stock cannot always be sold at some point in the future. Obsolete or dead inventory is stock that can no longer be sold because the product has reached the end of its life cycle. This inventory will not sell for a long period of time and is not expected to sell in the future. Holding on to this stock can be very costly, taking up space. As a result, this can result in extreme losses for a business.
The first step to avoiding storing obsolete inventory is to identify the cause:
1. Inaccurate Forecasting
Bad forecasting of consumer demand means you risk will end up with excess stock. What if this stock becomes obsolete before you can sell it all? Once a product hits the end of its life cycle, these goods will not be able to sell. For example, let’s say your company had a surplus of flip phones as smart phones became popular. Do you think you could still sell those flip phones today?
Obsolete stock can result in storage costs, as well as the cost of their disposal. Effective forecasting methods will help your business accurately meet demand and avoid surplus stock.
2. Poor Product Quality or Design
Poor quality or design occurs when a product does not meet the expectations of its customers. As a result, demand will quickly decline. You will be left with a large amount stock that cannot sell. Also, this cost is not just monetary. Not only will it shorten the product’s life cycle, it can also damage the reputation of your brand. Practicing excellent quality assurance and thorough market research will help you avoid these losses.
3. Inadequate Inventory Management System
Manually tracking and planning your company’s future orders is error-prone and takes up a lot of time. But, you can avoid these errors and save the costs. Using an inventory management system to track your stock levels can prevent surpluses. Less surpluses, less chance of having obsolete stock. Finding the right system can help your business avoid carrying obsolete stock.
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4. Long Lead Times
An inefficient supply chain can result in long lead times. So, you may accumulate excess inventory that will never sell. Reducing lead times will help streamline your supply chain and decrease the amount of stock you need to keep on hand. As a result, this will prevent obsolete stock risks by improving the accuracy of purchase orders to consumer demand. You can do this with more accurate forecasting or using a just-in-time delivery strategy.
5. No Management of Obsolete Inventory
Expecting dead stock to sell as your storage expenses pile up is far from efficient. Instead, you should have an inventory reduction plan in place/ This will mitigate the risk of stock piling up. What does this plan entail? You can assign a team of employees to actively work improving inventory processes that will reduce your levels of obsolete inventory.