Obsolete inventory control

Not focusing on its obsolete stock leads to important costs for the company, among which:

• Financial immobilization
• Valorization and margin loss (products are less and less in line with market expectations)
• Marking down (goods damages risks due to long storage period...)
• Transport (goods sales on another site, return to supplier...)
• Storage (surfaces utilization)
• Destruction, recycling (in worst case, the company will have to take care of destruction expenses and if need be, product recycling costs)

Usual steps of obsolete inventory control are:

1. Prevent
2. Identify
3. Plan actions
4. Act
5. Measure and control

1. Prevent

To run out an obsolete stock requires a lot of energy on behalf of the logistician.

This is why it’s wiser to act upstream in the supply process to avoid the obsolete stock built-up.

Simple rules shared by various departments of the company allow limiting it:

 1. Identify in advance the item oddment (end of life date)

• with a notice corresponding at least to the procurement lead time

• with an end of life management plan shared between purchasing and sales departments

1. Stock exhaustion

2. Item replacement

3. Back to supplier

4. Sales...

2. Program the supply according to the end of life date and to the action plan

3. Regularly communicate the inventory position to purchasing and sales departments and decide.

2. Identify

Set up a stock cartography showing details of stock composition on cover criterions:

• Calculate stock cover item by item taking into account stock exits forecasts (based on sales forecasts analysis) 

• Separate items in groups:

  • dead stock: items without movement since more than 1 year, 6 months, 1 month (according to rotation standard levels)

  • overstock: items which stock cover is higher than the stock objective (dissociate various classes of cover for more visibility on priorities: more than one year of stock, 6 months, 1 month....)

  • in line stock (conform) : conform with the objective

  • shortage

• Valorize the stock of each item and constitute the following cartography (example):

• Detail the cartography according to activity’s criterions:

  • Detail by product family,

  • by flow, site, supplier,

  • by ABC class of rotation...

Example:

• Identify most penalizing items in value, age... belonging to dead stock (for a priority action plan)

3. Plan your actions
Company must keep a daily watchfulness on dead stocks. It is necessary to organize a daily communication of stocks levels on the most penalizing items.

Punctually, in the event of massive stock reduction actions, it will be necessary to organize a taskforce including:

• purchasing

  • back to supplier

• sales (finished products)

  • promotions

  • sales

  • outlet

  • Sales kits including an obsolete product and a product with strong rotation (succesfull product...)

• sales forecast department

  • take into account the impact of commercial action plans

• supply planers

  • knowledge of supply constraints

• cost control

• depreciation provisions

Instead of destroying the remaining stock, the best option is to sell it to a discounter. If so, it should be wise to ship the product only after receiving the payment.

You can also choose to give it to humanitary associations.

4. Act

People in charge for stocks elimination must receive a daily communication informing them of items and stock levels to be reduced through a given action plan.

A regular reporting allows related functions to follow-up achievements.

5. Measure and control

The stock cartography and its detailed elements are to be included in the company KPIs and to be monthly followed-up by the Board of Directors.