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What are the most effective ways to communicate inventory obsolescence risks?

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Inventory obsolescence is the loss of value or usefulness of inventory items due to changes in technology, customer preferences, or market conditions. It can result in inventory shrinkage, write-offs, and lower profits. To avoid or minimize these negative impacts, you need to communicate inventory obsolescence risks effectively to your stakeholders, such as managers, suppliers, customers, and auditors. Here are some of the most effective ways to do that.

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Maxim Shevelev

???? Commercial Director (CCO) JSC "Urals Pipe Works", PhD | Strategic Director | Oil & Gas | Sales Leader |…
Dennis Crawford

District General Manager/Accounting
Luqman Khawaja

Strategic Procurement Manager l Expertise in Sales and Marketing | MBA (Marketing) l 15+ Years of Industrial Experience…

1 Identify the sources of obsolescence

In order to effectively communicate inventory obsolescence risks, it is essential to first identify the sources or causes of obsolescence in your inventory. These sources can vary depending on industry, product type, and market dynamics, but some of the most common are technological obsolescence when new or improved products or processes make your inventory obsolete or less competitive, functional obsolescence when your inventory becomes unusable or inefficient due to changes in standards, regulations, or customer requirements, fashion or style obsolescence when your inventory loses appeal or demand due to changes in trends, tastes, or preferences, and seasonal obsolescence when your inventory has a limited shelf life or demand due to seasonal factors such as weather, holidays, or events. By recognizing these sources of obsolescence, you can assess the likelihood and severity of inventory obsolescence risks and plan accordingly.

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Maxim Shevelev

???? Commercial Director (CCO) JSC "Urals Pipe Works", PhD | Strategic Director | Oil & Gas | Sales Leader | Innovator & Technology Expert | PM | MBA
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Technological obsolescence is when new or improved products or technologies make older items less competitive. Functional obsolescence happens when products become unusable or less efficient due to changing standards, regulations, or consumer demands. Fashion and style obsolescence occurs when products lose appeal or market demand due to shifting trends, tastes, and preferences. Finally, seasonal obsolescence can happen when products have a limited shelf life due to seasonal demand fluctuations caused by weather, holidays, and events.

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2 Monitor and measure inventory performance

The second step to communicate inventory obsolescence risks is to monitor and measure inventory performance regularly and accurately. This involves tracking and analyzing key metrics, such as inventory turnover, inventory days, inventory aging, and the inventory obsolescence reserve. These metrics indicate how quickly your business sells inventory, how long it holds the inventory, how old the inventory is, and how much you anticipate inventory obsolescence. By monitoring and measuring performance, you can identify and report risks and trends related to obsolescence, allowing you to take corrective actions if necessary.

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3 Implement inventory management best practices

The third step to communicate inventory obsolescence risks is to implement inventory management best practices that can reduce or prevent them. Demand forecasting, inventory optimization, inventory classification, and inventory disposal are all key elements of this process. Forecasting uses historical data, market research, and customer feedback to estimate future demand. Optimization determines the optimal quantity, location, and mix of inventory that can meet demand and minimize costs and risks. Classification categorizes items by their value, demand, or obsolescence potential. Disposal strategies like discounts, promotions, donations, or recycling can help you get rid of obsolete or excess inventory and recover some of your investment. By using these best practices, you can communicate inventory obsolescence risks and solutions and demonstrate your inventory management competence and efficiency.

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Dennis Crawford

District General Manager/Accounting
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Seasonal merchandise requires detailed inventory planning. In brick and mortar businesses placement of the seasonal goods is critical: 1) set up displays early ( ahead of traditional setup timelines ie Halloween or Christmas) along with placement of overstock for easier access by both customers and staff alike. 2) setting up specific areas for seasonal merchandise and placement in high traffic areas in the store including use of end caps 3) fully functional merchandise displays and/ or visual aids to increase customer understanding of products 4) timely markdowns for seasonal merchandise to move excess items 5) if fiscally feasible pack up excess seasonal merchandise to resell next season 6) deep discounts for damaged/ missing items

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4 Educate and engage your stakeholders

The fourth step to communicate inventory obsolescence risks is to educate and engage your stakeholders about the causes, consequences, and solutions of inventory obsolescence. This involves sharing your inventory obsolescence risk assessment and performance reports with your managers, suppliers, customers, and auditors and explaining the implications and actions taken. Additionally, you should solicit feedback and suggestions from stakeholders on how to improve inventory management and reduce obsolescence risks. You can also collaborate with them on initiatives such as product development, quality control, supply chain management, or customer service that can prevent or mitigate inventory obsolescence. Lastly, recognize and reward stakeholders for their contributions and achievements in inventory management and inventory obsolescence reduction. Through this process, you can communicate inventory obsolescence risks and opportunities and build trust among your inventory management partners.

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5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Luqman Khawaja

Strategic Procurement Manager l Expertise in Sales and Marketing | MBA (Marketing) l 15+ Years of Industrial Experience l Interested in Digital Marketing, Stocks and Video Editing
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In the post-Covid-19 manufacturing landscape, Just-In-Time production is crucial for meeting customer demands in terms of quality and delivery. Both backward and forward integration play pivotal roles in achieving this. Managing inventory obsolescence risks is essential, and returning products before expiry is wise. However, it's vital to share costs like insurance between suppliers and buyers. Additionally, fostering adaptability and collaboration is paramount for success in today's challenging environment.

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What are the most effective ways to communicate inventory obsolescence risks?

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3

4

5

1 Identify the sources of obsolescence

2 Monitor and measure inventory performance

3 Implement inventory management best practices

4 Educate and engage your stakeholders

5 Here’s what else to consider

Inventory Management

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What are the most effective ways to communicate inventory obsolescence risks?

1

2

3

4

5

1 Identify the sources of obsolescence

2 Monitor and measure inventory performance

3 Implement inventory management best practices

4 Educate and engage your stakeholders

5 Here’s what else to consider

Inventory Management

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