![]() Of the eight types of waste in LEAN, defects, overproduction, waiting, non-utilization, transport waste, inventory, motion, and excess processing, inventory waste tends to be directly connected to motion and transport waste. The LEAN thinking is that because the organization is not immediately using it, the inventory is tying up both physical space and capital that managers could be using to create value. Waste within LEAN manufacturingįor companies working within the LEAN framework, inventory waste represents missed opportunities specifically. ![]() That rotten bottle of milk is a perfect example of opportunity cost. Because you had capital tied up in that milk, you couldn’t invest it anywhere else. Refrigerators run on constant electricity and occasional maintenance and repairs, all of which cost money. You also lost the money it took to keep it cool. If it hadn’t been there, you could have had something useful in its place. Besides the milk, what else have you lost?įirst, you lost the space in the fridge it took up while it was sitting there doing nothing. Eventually, it spoils, and you have to throw it out. So, imagine you buy a bottle of milk but never drink it. Hopefully, this provides you with a new way of identifying inventory problems before they become a financial burden.Although the name suggests it’s just the inventory that’s going to waste, there is a lot more involved.Ī good way to understand inventory waste is to remember an unavoidable universal truth: almost nothing is worse than accidentally drinking spoiled milk. Regardless of the choices for reducing inventory levels, the first move would be to determine what items might be in excess and possibly troublesome, whether raw material or finished goods. Keep an eye on inventory levels you should use an inventory tracking system that helps you to see how much inventory you have at any given time because you want a clear look into your inventory levels. It will also help you appreciate the current inventory turnover levels and give your ideas about how to improve them. Using a precise reorder point formula will help you determine where and how much inventory you'll need to order. Best practices include paying careful attention to market patterns of previous years, mostly buying brands with established track records with reliably good sales, and paying attention to what the rivals sell and how well they do. As we found out "Causes of Obsolete Inventory" in this article, predicting demand correctly is an important consideration whether you have an obsolete stock or not. Here are few tips on avoiding outdated inventories if you have lost your excessive stock and want to make sure that you never deal with it again. If you are trying to transfer your warehouse as much stock as fast as possible, you can also bundle goods and deliver a discount on a bundle.īundle goods that are not sold separately with products that are identical or often purchased jointly. You can retrieve the old item by useful value addition to make them worth using and remarket it. You can still sell the leftover stock to liquidation companies if your buyers fail to purchase an outdated stock irrespective of the quantification, discount, or package you market it. There are companies that would purchase the goods at the lowest possible price in order to free up storage space and cash. Companies also charge outdated inventory against their cost of products sold at the end of the year, accepting the loss and carrying on. ![]() Obsolete product write-offs are a common method of minimizing unwanted inventory. Here are a few methods that are use full for getting rid of it: Dispose of Obsolete Inventory The longer obsolete inventory remains in your Store/warehouse, the more it hurts your business. Obsolete/dead Inventory - No usage in last 12 months not used How to deal with Obsolete Inventory/Stock: Slow Moving Inventory - More than six months on hand not usedĮxcess/leftover Inventory - More than 12 months on hand not used ![]() ![]() Every business and sector has its own set of dynamics that influence and describe by the following terms: The first step to analyze these obsolete inventory is determined by the essential time period with the term used. In general time period is short for FMCG sectors. When there are no transactions for a certain period of time, most companies determine that their inventory is dead. Obsolete inventory is a red flag because you haven't been complying with best practices in inventory management. Obsolete inventory is also known as excess inventory or dead inventory. Such inventories must be recorded and may cause a business to suffer significant losses. This inventory has not been sold or used in a long time and is not likely to be used in the near future. The word "obsolete inventory" refers to inventory that has reached the end of its product cycle. ![]()
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