Obsolete stock are essentially goods with little to no customer demand over a sustained period. This type of stock can hurt your cash flow for several reasons. It increases inventory carrying costs, absorbs working capital that could be spent elsewhere and is typically sold at a lower net resalable value or taken as a loss. Either way, your profit margin is affected.
If you have obsolete stock taking up space in your warehouse, that’s likely happening because of poor demand forecasting and buying practices. So, you’ll want to have a robust company policy in place to prevent this from happening. To make sure the policy is effective, you should:
- Go back to basics with the inventory forecasting techniques we’ve mentioned and be as detailed as possible with your data.
- Track every inventory item through its product lifecycle and analyze customer demand data. By doing this, you can see the items that are in constant decline and becoming excess inventory (having more inventory than your demand forecast suggests is needed).
- Take action before this excess inventory becomes obsolete stock by doubling down on marketing and selling. Or adapt how you reorder to match demand and lower stock levels.