SLOB Slow and Obsolete Inventory Stock:: How to deal with it

These numbers can change quickly, so employees need the most up-to-date information. ERP inventory systems draw on a variety of data sources to help companies better understand the performance history of various SKUs, among other insights. Obsolete or dead inventory is stock that inventory obsolete can no longer be sold because the product has reached the end of its life cycle. This inventory will not sell for a long period of time and is not expected to sell in the future. The word “obsolete inventory” refers to inventory that has reached the end of its product cycle.

• In this article, we discuss how to avoid, identify, reduce, and manage obsolete inventory to ensure a more profitable business.
• For instance, refrigerant that was purchased as a qualified product but is no longer allowed due to EPA regulations is dead inventory.
• Obsolete inventory is a red flag because you haven’t been complying with best practices in inventory management.
• There needs to be important communication channels between planning and sales managers.
• The Distributor Principles have owned, run, managed, and advised successful distribution companies for many years.

At least setting a planned number makes sense and can enable a category strategy around that target to be established. There are a few ways to keep obsolete inventory from sitting in your warehouse to the point it no longer holds any value, which at that point, nothing can be done. First, as you find yourself facing slow-moving and excess inventory heading towards obsolescence, you can attempt to sell it.

Benefits of Getting Rid of Obsolete Inventory

And this is critical, especially if we have both materials and produced goods. The Months on Hand ratio gives us the average number of months that an inventory item spends in our warehouse.

Under Generally Accepted Accounting Principles , it should list the obsolete inventory as an expense and use an inventory reserve account to offset the loss. Perhaps an item breaks easily or doesn’t work as advertised, due to either a design oversight or a mistake in the manufacturing process.

How to Change From the LIFO to FIFO Irregular Items on an Income Statement

When a product has matured, it means it’s incredibly profitable due to the cost of production and marketing both being decreased. After this stage, as the market changes and demand shifts, it will enter a decline in profitability and relevance. If these products are not sold before it reaches the end of its lifecycle, it becomes obsolete. Slow-moving and obsolete Inventory is a problem many businesses face. If left unattended, it can grow into a severe red flag for investors and financing institutions.

We have €14 mil in obsolete Inventory, and another €17.5 mil in slow-moving goods, meaning almost 30% of our stock on hand is close to useless for the company. The first thing we need is a breakdown of the Inventory account, showing the opening balance for each item, the inflow and the outflow , and the closing balance.

Obsolete Inventory and How to Deal With It

If you are not the inventory management process owner, it’s best to discuss the brackets with the people in charge of Inventory. You may also involve your auditors, or even the respective tax authorities, as there might be some local limits or requirements. Roger Johnsonhas more than 30 years of private and public company experience as CFO, VP of Finance, Controller, and Director of Finance and Administration.

• The accounting experts and consulting professionals at MKS&H work together to help you achieve the financial results you want.
• There is a common misconception surrounding the OBSOLETE status value for Maximo Inventory/Item Master records.
• This includes having insights into production lead times, labor needs, warehousing, order fulfillment, and shipping.
• But to move the product faster and get more cash for it, the company decided to bundle the product with two best-selling wines, a red and a white.
• A company reviewing inventory factors/parameters of thousands of SKU’s manually can be extremely cumbersome.

They use up the reserve money as they dispose of their obsolete goods. The first step in accounting for obsolete inventory is to identify it, Accounting Tools explains. Larger companies set up a materials review board to judge when inventory is worthless. They can do this by reviewing paper records or performing a physical inspection. Sortly is a top-rated inventory management software system designed to help your business avoid inventory obsolescence.

Often, management ignores strong signs and believes in some almost miraculous ‘come back.’ And this seldom happens, resulting in piling up slow-moving and excess stock that slowly transforms into obsolete Inventory. Whenever we have identified dead stock, https://www.bookstime.com/ it’s best to deal with it straight away, so it no longer hurts the business with holding costs and tied up cash. Businesses that sell physical products, as well as those in the maintenance and repair industry, need to track obsolete inventory.