What is Obsolete Stock?
Obsolete stock is referring to inventory that has reached the end of its product life cycle and has not been sold for an extended period meaning it has to be written off, often causing large losses for a company. It is more commonly referred to as ‘dead inventory’ or ‘excess inventory’.
As organisations are constantly under pressure to become more profitable this places importance on avoiding obsolete stock through stock optimisation and management while utilising the underlying principles of best practise procurement for sourcing goods and services.
- The right quality: Sourcing goods or services that are both acceptable and fit-for-purpose
- The right quantity: Ensuring sufficient quantity to meet demand and maintain service levels
- The right place: Receiving goods at the specified place correctly packaged and in mint condition
- The right time: Delivery of goods is at the right time to meet demand without incurring inventory holding costs
- The right price: Ensuring all the above at a price that is fair, competitive and affordable
Stock optimisation (also known as inventory optimisation) is the art of achieving stock availability while reducing inventory costs and minimising the risk of holding excess items.
Stock takes up valuable warehouse space and ties up capital. There is a trend in the consumer market where more choice is causing an increase in inventories. This is especially seen in fast-moving consumer goods (FMCG) and the retail industry.
The main challenges for stock optimisation are:
- Overstocks can be due to poor data or outdated processes
- Stock-outs are mainly due to poor inventory management and errors in forecasting
- Safety stocks how much is needed
- Long lead times may result in excess stock that never sells
- Erratic and unplanned demand again can be due to poor forecasting
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Managing aged and obsolete stock
Procurement teams are often held accountable for the non-availability of stock.
The suppliers may be too few or too many and service level agreements not adhered to, or even non-existent, resulting in inefficiencies and waste. Sometimes overly complex procurement systems and misaligned processes can also negatively impact the stock situation.
To find out more about this subject read the full knowledge paper: Managed aged and obsolete stock
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