Promotional tactics like buy-one-get-one-free offers can stimulate sales of slow-moving products. Adjusting pricing strategies, including discounts and promotions, effectively helps move slow inventory. In order to make any of these review systems work, it is necessary to create policies and procedures as well as ongoing scheduled review dates. By doing so, there is a strong likelihood that obsolescence reviews will become a regular part of a company’s activities. Another Board policy should state that management will actively seek out and dispose of work-in-process or finished goods with an unacceptable quality level.

Experience the simplest inventory management software.

Once an item reaches the end of its product lifecycle and a company feels certain that it will never be used or sold, a business will usually write down or write off that inventory as a loss. Secondly, failing to produce a high-quality product will lead to returns, complaints, and an overall fall in sales. Without the proper product testing and introduction in the product’s lifecycle, there isn’t that allotted time to ensure a product is in good condition and able to sell at profitable rates.

How can inventory management software alleviate obsolescence risk?

In this case, your excess stock can be written off as a loss on your financial statements. Find out how Flowspace can help your brand avoid inventory obsolescence and improve outcomes with connected inventory management software and a vast fulfillment network. Sometimes, it’s best to cut your losses and write off obsolete inventory as a loss.

Consistent and enduring benefits necessitate a commitment to continuous refinement, involving diligent performance monitoring, stringent accountability measures, and relentless process optimization. To achieve sustained success, organizations must actively track progress and implement data-driven adjustments. Include a detailed description of each task performed and how long each task takes to complete (cost in time). Once step two is finished, you should have a complete list of all changeover elements with a description and cost in time for each. In fact, the journey from a 15-minute tire changeover to a 5-second tire changeover can be considered a SMED journey.

These tools can flag items with low turnover rates or those that have been in storage for extended periods, providing actionable insights for inventory managers. Additionally, integrating these software solutions with sales and customer relationship management (CRM) systems can offer a more comprehensive view of product lifecycle and customer preferences. To recognize the fall in value, obsolete inventory must be written-down or written-off in the financial statements in accordance with generally accepted accounting principles (GAAP). Purchasing should be data-driven and closely tied to forecasting and demand planning. When it’s not, and the purchasing team is buying based on anecdotal knowledge or other unreliable factors, it leads to problems. Deal-hungry purchasing managers willing to buy everything in bulk to reduce the cost per item can also leave a company with too much product on its hands.

Using software, inventory managers can calculate how long products have been on their warehouse shelves and take proactive steps to offload this stock. The lost revenue from storing dead stock can lead to cash flow problems because a considerable amount of your company’s finances are tied up in inventory you can’t sell. Led by Mohammad Ali (15+ years in inventory management software), the Cash Flow Inventory Content Team empowers SMBs with clear financial strategies. We translate complex financial concepts into clear, actionable strategies through a rigorous editorial process. Maintaining open communication with your suppliers and customers can be a valuable source of insight into potential obsolescence issues.

What Are the Causes of Dead Stock?

They could also be sold at a discount, liquidated, donated, or written off as a loss. Obsolete inventory is any excess products or stock a small business has and doesn’t expect will sell, usually due to lack of demand. Also known as dead inventory, obsolete inventory is at the end of its product life cycle—often because it has been replaced in the market by newer, updated versions of the product.

For example, you may calculate a lower price to sell the product to entice sales and speed up the removal of potential stock or write it off completely. It outlines how to identify obsolete inventory and set criteria for when inventory should be classed as obsolete, such as setting an expiration date and ideal rate of demand. Improving your inventory forecasts can also prevent you from ordering too much stock, as can improving your inventory management practices. Companies must find creative ways to clear dead stock from their warehouse and prevent it from recurring.

Identifying obsolete inventory begins with analyzing sales trends and inventory turnover ratios. Inventory management software can track these metrics, flagging items that haven’t moved within a specific timeframe. For example, a product that hasn’t sold in over a year may be flagged for review.

These systems can track inventory levels, often in real-time, and provide basic KPIs to help monitor obsolete stock. Inventory optimization software, such as EazyStock, takes this one step further, calculating and reporting on healthy, excess and obsolete inventory levels of every SKU daily. Accounting for obsolete inventory involves specific methodologies to ensure that financial statements accurately reflect the true value of a company’s assets. One common approach is the lower of cost or market (LCM) method, which requires businesses to write down the value of inventory to its current market value if it has declined below the original cost. This method helps in presenting a more realistic picture of the company’s financial health by acknowledging the reduced value of unsellable items.

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Without proper tracking, it’s difficult to identify which products are nearing the end of their life cycle, making it challenging to take timely actions like discounting or liquidating excess goods. Unsellable stock ties up capital that could otherwise be used for more productive purposes, such as investing in new product lines or expanding market reach. Poor inventory management can lead to increased holding costs, including storage, insurance, and handling expenses. These additional costs can strain a company’s cash flow, making it more challenging to meet short-term obligations and invest in growth opportunities. Modern software solutions, such as NetSuite or TradeGecko, offer advanced analytics and reporting features that can help businesses track inventory performance in real-time.

With Sortly, you can track inventory, supplies, parts, tools, assets, and anything else that matters to your business. It comes equipped with smart features like barcoding & QR coding, low stock alerts, customizable folders, data-rich reporting, and much more. Best of all, you can update inventory right from your smartphone, whether you’re on the job, in the warehouse, or on the go.

• If a product is found to have quality issues or defects after being stocked, it can become unsellable.
• Start selling off your existing stock as soon as possible and explore alternative products to avoid future gaps in your inventory.
• Consumer demand may decline because the product is poorly made, irrelevant, untimely, or already saturated in the market.
• If not, it may be best to liquidate or donate the inventory to avoid overpaying storage fees.

By systematically reducing changeover times, it unlocks a cascade of benefits that reshape production dynamics. Managing slow-moving inventory involves identifying the underlying causes and taking appropriate actions to address them. Costs involved in managing slow-moving inventory include storage, rent, labor, insurance, and handling what is inventory obsolescence expenses.

When a business is carrying excess inventory, e.g., more stock than demand requires, stock must be reduced accordingly. Otherwise, it will become obsolete if the items have no demand, deteriorate, or pass their sell-by-date. By employing these techniques, you can effectively identify obsolete inventory and take timely action to minimize its impact on your business.

• By aligning inventory levels with anticipated demand, companies can reduce the risk of overstocking items that may become obsolete.
• The term “single-minute” is a bit misleading—it doesn’t mean every changeover should only take one minute, but that every changeover should take less than 10 minutes, or a single-digit minute.
• Though there are several ways to help avoid accumulating obsolete inventory, carrying any type of dead stock is inevitable.
• Inventory optimization software is one way to do this – contact our team today for more details.

This data-driven approach allows businesses to address potential obsolescence proactively. With the right inventory and supply chain management tactics, any small business can minimize or avoid obsolete inventory. Software programs can help business owners improve forecasting and order management in order to make better purchasing decisions. Likewise, inventory audits can help companies get a better idea of their holding costs, which in turn can reduce inventory obsolescence. All these features help businesses reduce waste, minimize the financial impact of obsolete inventory, and improve overall operational efficiency. For example, MRPeasy integrates all of the above functionalities to support businesses in maintaining a streamlined and profitable inventory management process.

Potential Tax Implications

You can sell them at a discount, bundle them with other products, liquidate them through surplus resellers, try to remarket them to a different audience, or do a complete inventory write off. Slow-moving inventory is primarily caused by market dynamics, specific product attributes, and ineffective marketing strategies. For instance, winter coats that had been in stock for five months despite an initial assumption that they would sell out in 90 days.

For example, a beauty brand might notice that demand for products with SPF starts to pick up in the spring and reaches a peak in the summer. While this trend seems obvious, inventory tracking might also help the same brand detect a smaller demand increase around the end of the year when people might be taking tropical vacations. Bundle your slow-selling items with popular products to make the deal more enticing.