LALI Business Consulting Pty Ltd

Buidling better business for today and the future

Inventory management: Inventory Obsolescence: What, why and how?

What is inventory obsolescence?

Inventory obsolescence is when the inventory is no longer salable / usable. Inventory obsolescence can happen for many reasons: changes in market conditions, regulations, changes in technology, fashion, over stocking or lack of demand.

Why inventory obsolescence important?

Highly levels of inventory obsolescence in a business can indicate poor inventory management, poor supply & demand forecast for products, and poor products to satisfy the demands of the customers/markets.

Inventory represents a most valuable assets of the business. The turnover of the inventory is the main source of income for a product based business and therefore inventory obsolecence can significantly contribute to poor sales performance of the business, its market share long term sustainability. Therefore inventory management is critical to the sucess of your business.

How to manage inventory & avoid obsolescence?

The best way to manage inventory obsolescence is to employ the best inventory management practices and align overall business objective. Keeping the right amount of inventory is critical in the inventory management process.

Inventory management involves, Keeping too much stock will cost the business storage, damages and obsolescence and under stocking will result in missed sales oppotunities, customer dissatisfaction and potential market share.

In order to best manage inventory and avoid obsolescence:

1. Analyse and understand your customers needs and wants and sales trends.

2. Build better relationships with suppliers and minimise lead times and improve business operations.

3. Regularly review the quantities of inventory in hand and stock valuation.

4. Review and analyse aging of the inventory and allow financial accounting provisions.

5. Regularly review and analyse the changes in the markets.

6. Regularly count your inventory (cycle count) and compare them to the inventory records.

Inventory management is critical part of your financial management and control and help improve performance, profitability and market share of your business.

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This entry was posted on 31/01/2012 by in Financial management.

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