What is the definition of obsolete stock?
Inventory that has hit the end of the commodity life cycle is referred to as obsolete stock. There is no consumer appetite for the commodity at this point in its life cycle.
Companies that haven’t correctly predicted a drop in demand or successfully cut their product replenishment strategies are often left with vast amounts of redundant stock in their warehouses. The obsolete stock then remains on a company’s balance sheet as a source of operating capital with no prospect of a profit. Obsolete stock is the inventory that has reached the end of its diminishing life cycle stage.
Surplus stock may also occur as a result of rapid shifts in customer preferences, fashion, or technology, or as a result of a product’s rejection by the industry. Efficient market planning and inventory control systems should preclude this from occurring in both cases.
Act until surplus stock becomes redundant to reduce excess and obsolete inventory.
Ascertain that you can monitor goods across their whole life cycle. It’s usually too late to take steps that would result in a profitable return on investment until the inventory has become redundant. Instead, you can strike when a product’s revenues tend to decline (but make sure it’s not due to seasonality!) and adjust the reordering conditions to fit demand.
When you discover surplus supply, which is stock that you have over your forecasted demand, work with your marketing and sales departments to accelerate sales until it becomes redundant.
Companies may prevent stock obsolescence entirely if they have strong inventory practices in place and a better view of actual consumer demand.
Get rid of obsolete inventory.
Often businesses are uncertain what to do with redundant inventory and make the mistake of failing to liquidate it as soon as possible. Any business will have outdated inventory on hand to prevent a significant write-off or loss on their quarterly report. This is because it’s never easy to admit that a once-significant investment that was meant to generate income has now become a company expense. But be warned: if you don’t deal with outdated inventory now, things will just get worse. Allowing accounting to drive weak operational decisions is a bad idea.
Get rid of redundant inventory and repurpose the storage room for more efficient and beneficial inventory turns.
Inventory Obsolescence Should Be Avoided
Stock control systems are excellent in monitoring inventory flows, but they frequently fall short of determining what stock to hold and in what amounts to satisfy consumer demand. You must ensure that the demand forecasting, stocking policies, and replenishment processes are completely configured to avoid holding surplus and obsolete stock.
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