Main | Innovations that will take your warehouse efficiency to new levels »

Your dirty secret: obsolete inventory

By Kate Lee | 01/07/2014 | 9:22 PM | Categories: Weblogs

Do you have obsolete inventory?  Chances are your answer is going to be no, or perhaps you’ll humor me and admit that you do have “some” – albeit an inconsequential amount.  The reality; however, is that a significant portion of your warehouse is likely home to obsolete inventory.  Obsolete inventory is your warehouse’s dirty secret.  Here are four reasons why you need to fess up to this secret and clear out obsolete inventory.

1.      Face it, the Discman is not coming back

You have pallets and pallets of an amazing product taking up a portion of your warehouse.  You don’t categorize this as obsolete inventory because you know the product will be in vogue…soon.  Let’s be honest, that day is probably not ever going to come.  If it walks like a duck, looks like a duck, and quacks like a duck – it is likely a duck.  Time to make it official and classify said inventory as obsolete.

2.      Don’t ask don’t tell is kaput

Obsolete inventory carries a lot of baggage with it.  Specifically: How and why did the inventory become obsolete?  What is the inventory going to cost the company?  How much has it cost the company already?  Because managers (as well as companies) often do not want to: 1) learn the truth and 2) face the truth, they do not ask the necessary questions at the right time.  Ask the questions.  Look at the data. 

3.      Knowing is (more than) half the battle

Ignorance is not bliss.  Current technologies enable companies to know what is happening with their inventory – in real time.  This is not the technology of the future; it is the technology of today.  In the majority of cases, the cost of utilizing this technology far outweighs the costs of not using it.

 4.      Lighting money on fire never makes sense

The cost of obsolete inventory is staggering.  Industrial Supply Magazine reports that excess and obsolete inventory costs the typical distributor 25 percent per year.  What this boils down to is that – each year - $100,000 of obsolete product costs your business $25,000 due to storage, damage, shrinkage, and the cost of money each year. The magazine’s Distribution Board asks:  “What could you have done with that $25,000 to grow your business?” 

If that didn’t get your attention, this might.  Jeffrey Barry of F. Curtis Barry & Company shares the story of a client who called saying they were running out of warehouse space: “One of our consulting clients has $550 million in annual sales, 135 stores and a b-to-b catalog and e-commerce business.  We had designed a warehouse which was to last five years.  Three years into its life, they called to say they were running out of space.  Our analysis of the 17,000 products in inventory showed that 60,000 sq. ft. of the 350,000 sq. ft. total was tied up in obsolete and inactive inventory.  This was news to them; their inventory management system did not focus on age of inventory or fast and slow sellers, and they did not have a continuing inventory process for liquidating slow moving items.  Among those in top management (who did not have experience managing inventory), the feeling was that there really wasn’t such a thing as inventory carrying cost.  Their attitude was, “We’ve already paid for the inventory and we own the warehouse outright.”  But they didn’t take into account the cost to prematurely expand ($2.5 to $3.0 million); opportunity costs for doing something else with invested capital; taxes and insurance; and labor to maintain the inventory.  All this amounts to a sizable expense.”

Keeping obsolete inventory in your warehouse is equivalent to setting money on fire - expensive and just not that smart.

Don’t let obsolete inventory jeopardize the success of your company.  Fess up and do something about it.



By submitting your comments, you agree to our Terms of Service.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Elizabeth Hines

Elizabeth Hines

Elizabeth is a content strategist with 12+ years of experience in content development, branding, marketing, and communications. As the creative/editorial director at Fronetics, she oversees all efforts related to content and creative assets, including strategy design and brand development.

She has written extensively about supply chain and logistics, and has developed content strategies across a number of verticals, including the B2B space. Prior to joining Fronetics, Elizabeth worked at Boston University, Prospectiv, and Cengage Learning.


Popular Tags

Recent Comments

Subscribe to DC Velocity

Subscribe to DC Velocity Start your FREE subscription to DC Velocity!

Subscribe to DC Velocity
Go digital