HOW TO REDUCE OBSOLETE INVENTORY

Excess and obsolete inventory come as a result of many factors such as incorrect forecasting, long lead times, and poor product design or quality to name a few. “Inventory managers are acutely aware of the challenge presented by excess, obsolete and slow-moving inventory and, if left
uncontrolled how it adversely impacts the bottom line” (Inventory reproduction report, 2001, p. 9). By analyzing the depth of the issue, inventory managers are able to identify the root cause which is often as a result of uncertainty in both supply and demand. When an organization reduces its uncertainties, it diminishes its exposure to obsolescence. To prevent the growth in obsolete inventory, organizations must strategize through sales and operations planning (SO&P). Pay (2010) asserts the following:
SO&P strategies closely integrate the supply and demand planning processes that allow the business to provide the right products/services at the right time in the right quantity at the lowest possible cost. A tight connection between operations capabilities and sales demand planning enhances profitability, performance, customer satisfaction and return on investment, all while lessening exposure to potential obsolete inventory. (p. 69)
Obsolete inventory is one of the most costly inventory expense to an organization because it can result in chronic losses for the business. To prevent this problem within an organization, the organization must use effective forecasting techniques to determine and meet the demand of customers; establish functional quality assurance practices; utilize an efficient inventory management system that keeps track of stock surpluses, and streamline supply chain by reducing lead times. Simply put, “the best way to prevent losing value in your inventory, whether official or unofficial, is to closely manage the stock to avoid excess and obsolescence. This starts with controlling the introduction of new products which often partially or fully take the place of other items” (Kaczmarek, 2016, p. 52).
References
Best practices that reduce excess and obsolete inventory. (2001). Inventory Reduction Report, 2001(9), 1. Retrieved from http://ezproxy.snhu.edu/login?url=http://search.proquest.com.ezproxy.snhu.edu/docview/201691022?accountid=3783
Kaczmarek, D. S. (2016). Calculate the real savings from inventory reduction. Healthcare Purchasing News, 40(4), 52.
Pay, R. (2010). Avoiding Obsolete Inventory. Industry Week/IW, 259(6), 69-70.

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