Effectively managing inventory is essential for any supply chain.
We understand that for most eCommerce businesses, making sure they have enough stock to meet customer demand is a big priority.
So, it’s easy to want to order extra just to be safe.
Although it is better to have some safety stock in case of any emergency, dealing with excess or obsolete inventory can be a major hurdle for businesses.
In this blog, we’ll explore tried-and-true strategies for handling obsolete inventory. These insights will help you streamline your supply chain and lower your costs.
Let’s get into it!
Obsolete Inventory: What Is It?
Obsolete inventory, also called ghost inventory or excess inventory, consists of items that are no longer in demand or have lost their market value.
This can happen because of changes in technology, shifts in consumer preferences, and other factors that we will learn about as we proceed with the blog.
Industries like electronics, apparel, and furniture are more prone to having outdated inventory. To avoid stockpiling products that won’t sell, these companies must be very diligent in managing their inventory systems.
Having too much inventory, especially if it becomes outdated, leads to several issues. So, let’s understand the consequences of obsolete inventory.
Obsolete Inventory: Consequences Of Having Too Much Inventory On Hand
Obsolete inventory can lead to:
- Inventory write-offs
- Lower market value
- More waste
These issues can harm a business’s financial health and future success. It can:
- Reduce profitability, making it harder to attract investors or get loans
- Use up valuable warehouse space, limiting room for profitable, fast-selling products
With effective strategies, these issues can easily be avoided.
But, to control inventory errors, it’s important to first understand the reasons behind what’s causing the obsolescence.
Obsolete Inventory: Causes
Here are five reasons that cause obsolete inventory:
Technological Advancements
Rapid tech advances can make current items outdated quickly. For example, the shift from VHS to streaming.
Change in Customer Preferences
Consumer tastes change rapidly, making once-popular items undesirable. Businesses must adapt to market trends to avoid unsellable inventory.
More Competition
New competitors can introduce more appealing products with better features or prices. This shift can render a company’s products outdated.
Regulations By The Government
Changes in regulations can make previously compliant products non-compliant. Adapting to new laws is crucial to avoid obsolete stock.
Inefficient Demand Forecasting
Inaccurate demand predictions can lead to overproduction. For instance, overestimating seasonal sales can leave a company with excess, unsellable inventory.
In the next part of the blog, we’ll tell you how to identify obsolete inventory.
Obsolete Inventory: How To Identify It?
Before we get into warehouse inventory management best practices it’s crucial to be able to identify obsolete inventory. Here’s how you do it:
Analyzing Sales Data
You should look for products with low or declining sales and high unsold stock. These are signs that the product may be losing market relevance.
Monitoring Product Life Cycle
Another way by which you can identify obsolete inventory is by tracking the product life cycle. This includes stages from introduction to decline. This helps to identify when a product is becoming obsolete.
Conducting Regular Audits
By regularly counting inventory and comparing it to system records, you can spot differences and take action to reduce excess or obsolete stock.
Constant Communication With Suppliers and Customers
Keeping in touch with your suppliers and checking their inventory helps you get the latest products and avoid having outdated stock.
Now let’s get into some effective strategies that might help you effectively manage your inventory.
Obsolete Inventory: 4 Strategies To Manage Obsolete Inventory
Here are 4 Strategies that can help you manage obsolete inventory better:
Liquidation
Liquidation is a common strategy for dealing with obsolete inventory.
It means selling excess or outdated stock to other buyers at a lower price to get back some of the initial investment and clear out warehouse space. You can liquidate inventory through online marketplaces, discount stores, or wholesale liquidation companies.
While you might not recover the full cost, it helps recoup some money and avoid extra costs for storage and handling.
Repurposing
Repurposing is another useful way to handle obsolete inventory.
It means finding new uses for outdated products or parts, either within your own business or by teaming up with other companies.
For instance, an electronics company might use old components to make new products or sell them to other manufacturers. A clothing retailer might donate unsold items to charities or turn them into things like cleaning rags or insulation.
Repurposing helps recover some of the initial investment, cuts down on waste, and supports eco-friendly practices.
Donation
Donating obsolete inventory is a strategy for products that can’t be sold or repurposed. Giving these items to charities or non-profits helps reduce financial losses, supports social responsibility, and enhances your brand’s image.
Recycling
Many businesses set up recycling programs by working with recycling companies to handle obsolete inventory in an eco-friendly manner.
For instance, a manufacturer might recycle scrap metal, plastics, or electronics, while a clothing retailer might recycle unsold clothes to create new garments.
Obsolete Inventory: Benefits
Managing obsolete inventory offers several advantages:
- Firstly, it strengthens a business’s financial position.
- It does so by lowering inventory costs and reducing write-offs, saving money, and keeping stock levels healthy.
- It also frees up resources for other projects, contributing to overall success.
Therefore, effective management of excess and obsolete inventory can be a very beneficial step for your business.
FAQs: Obsolete Inventory 101: How to Spot, Avoid, and Manage Outdated Stock
Are damaged goods considered to be obsolete inventory?
If the product cannot be fixed then it loses its value and automatically comes under dead or obsolete inventory.
How can you calculate obsolete inventory?
To calculate obsolete inventory, divide the value of obsolete stock by the total inventory value, then multiply the result by 100 to get a percentage.
Is obsolete inventory an asset?
Because obsolete inventory can’t be sold, it’s no longer considered an asset. Instead, it should be written off as a loss in your financial statements.
Conclusion
Managing obsolete inventory can be challenging, but with the right tools, it can be handled effectively.
Pay close attention to your purchases, stay updated with industry trends, and build strong relationships with your suppliers. Keep your inventory management strategies up-to-date to ensure obsolete items don’t hinder your growth and success. If you are struggling to manage your excess or outdated inventory, Qodenext can provide reliable supply chain management solutions.
Always remember that in a constantly changing market, a company’s greatest strength is its ability to adapt and overcome challenges.
