Smart inventory management is about creating and maintaining a lean system that eliminates excess stock and makes way for active inventory. Inventory turns into a liability when it becomes obsolete, is not used, has not been used in a long time, or is overstocked to levels that greatly exceed demand over a year’s time. When storage rooms are cluttered with supplies, it also becomes difficult for your team to find the parts and products they need, wasting time and energy. The common goal for any inventory management process is to create a system that prevents clutter and stocking issues, making it fast and easy for workers to get the supplies they need.
Inventory oversupply — where supply exceeds demand — is a common business challenge. An oversupply of inventory takes up valuable shelf space that could be used for material that is more in demand. For example, an oversupply of hard hats and gloves means other products more frequently used and requisitioned, such as earplugs, safety marking tape, and wiping cloths, are not at the forefront of inventory bins and ready to issue. This is an inefficient use of inventory shelf space and a waste of your business's money.
The Cost of Dead and Obsolete Inventory
Inventory oversupply can lead to dead and obsolete inventory. Dead inventory (also known as "dead stock") refers to stock that is no longer usable. For example, suppose ordinary batteries were over-purchased for a business. Batteries have a shelf life; they degrade over time and can corrode, making them useless. The remaining battery inventory would be considered dead inventory after expiring.
Obsolete inventory can also be the result of poor inventory management. Obsolete inventory may have been useful at the time of purchase but because it was not used or drawn soon enough, it was supplanted by another product. For instance, refrigerant that was purchased as a qualified product but is no longer allowed due to EPA regulations is dead inventory. It serves no purpose and takes up space for refrigerant bottles that are compliant and can be used.
Dead and obsolete inventory should be a huge financial pain point for material managers; for industrial firms in particular, it costs millions of dollars each year. According to research conducted by Grainger Consulting Services, up to 50 percent of maintenance, repair and operating (MRO) inventory items are inactive for more than 12 months and up to 60 percent of on-hand MRO inventory levels exceed a one-year supply.
When inventory supply closets are overflowing, and the team does not know where key products are located, it costs businesses both time and money: Grainger research has found that up to 22 percent of the time, maintenance employees leave a stockroom without the proper material or quantity. However, with smart planning and management, this problem can be greatly reduced or even eliminated completely.
Solving Dead and Obsolete Inventory Problems
The best defense against wasting money on inventory problems is a smart offense. Use these strategies to clean up your stocking issues:
- Plan properly, early, and instill lean inventory management processes.
- Use technology tools and solutions to help achieve and maintain lean levels.
- Commission the help of trusted advisors to audit inventory regularly. Sometimes referred to as “vendor-managed,” this approach uses the expertise of inventory specialists and their resources to uncover problem areas promptly so corrective action can be taken.
- Continuously refine ordering and stocking levels to meet accurate amounts of material demand.
- Sell excess, obsolete and dead inventory at a discount where and when possible, even if at salvage value.
- Consider donating dead and obsolete inventory for taxation purposes to recover some its cost.
Achieving lean inventory is challenging. However, the cost of delay is great and the problem must be confronted and resolved. Inaction is a losing strategy and one that will cost you and impede the efficiency of your operations.
Get the help you need with your inventory system with Grainger KeepStock Solutions.
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The information contained in this article is intended for general information purposes only and is based on information available as of the initial date of publication. No representation is made that the information or references are complete or remain current. This article is not a substitute for review of current applicable government regulations, industry standards, or other standards specific to your business and/or activities and should not be construed as legal advice or opinion. Readers with specific questions should refer to the applicable standards or consult with an attorney.