It would be best if you prevented tough situations while managing inventory, and obsolete inventory is the worst kind one can have. It is one of the significant problems that several businesses struggle to get rid of or prevent. With a useful inventory management tool, you can prevent yourself from getting into such situations. Obsolete inventory means that your products are damaged or are abandoned. It results in increased costs of inventory, and it is difficult to get rid of obsolete inventory.
There are times when a business can have inventory in hand that is not entirely sold out. A company wants to clear their stock to ensure that they have nothing left that may get obsolete. A few of them are not aware of the process to get their inventory. There are a few reasons behind obsolete inventory, and by knowing them, a business can reduce its chances.
You can also manage obsolete inventory to minimize the loss that you have to face. Let us first know the definition of the Obsolete Inventory so that the concept is better understood.
What is the Obsolete Inventory?
There are many definitions of obsolete inventory. It can be referred to as deadstock, excess inventory, or outdated stock. The items that have reached the end of the product cycle are all termed as obsolete. It means that the demand for that product in the market is not there. When the best practices of inventory management are not allowed, there are warning signs of getting rid of the older inventory first.
Once there are no sales for a particular period, a company discovers that they have obsolete inventory.
Get Rid of the Obsolete Inventory.
It would be best if you did not make an obsolete inventory sit for long in your warehouse. Try to get rid of it as soon as possible.
- Write-off Obsolete Inventory – Excess stock is often reduced by writing off obsolete There is a practice of companies to charge the amount of obsolete inventory to the costs of goods sold. They do this at the end of every year.
- Donating Obsolete Inventory – When demand for a particular product is not available in the market, companies can choose to donate them. This will give them tax benefits, and also they will get rid of obsolete inventory. Donating the surplus of inventory is a great idea to enjoy two benefits at the same time.
There are numerous other distinct ways through which a business can effectively get rid of obsolete inventory. However, these are the popular ones.
Prevent Obsolete Inventory
Once you get rid of obsolete inventory, you should ensure that you will not have to deal with them again. You can prevent obsolete inventory from occurring.
- Demand Forecasting – When a company forecasts the demand for its good in the future, it can prevent obsolete inventory. The demand forecast is crucial in determining whether or not a business will have to deal with outdated inventory. Instead, it is one of the biggest factors. They are required to pay close attention to the trends of their sales from past years. Only produce those products more that have a record of good sales.
- Track Inventory Levels – To have an insight into your inventory levels, you will need an inventory management system to know how much inventory to maintain at all times. With this tool, you will see whether you need to ramp up the sales efforts or have excess stock in hand.
- Know the point of re-ordering – With a suitable formula for evaluating pre-order points, you will know when is the right time to order more inventory, and how much you should order. You will also know your turnover of the rate of inventory, and will also get suggestions to improve it. A useful management tool will give you details on such aspects.
With the right inventory management system in place, you can track sales and stock at the same time to know that all your procedures are efficient. You will also get insights on the buying patterns of consumers, to make your marketing strategies work. Cluttering warehouses is crucial to know whether or not you have obsolete inventory and ways to prevent it. Also, forecasting consumer demand is vital so that ample stock is not manufactured, or purchased.
This is Sharon Winget, Staff Writer with GoodFirms, a review and rating platform of top IT companies & software. A tech geek at heart, I firmly believe technology can transform societies. I enjoy blogging about web design, email marketing, and content marketing.