Inventory obsolescence is a silent killer for many manufacturing plants. Obsolete stock costs can get hidden away on the balance sheet, and ignored until they become a million dollar issue.
Make Obsolescence Visible
Do not hide your head in the sand. Apply strict rules to analyse and write off obsolete stock as soon as possible. Reports should be obtained and analysed directly from an IT system which cannot be tampered with. Consider running a stricter internal report to give managers early warning of obsolescence before it has to be written off on the accounts. The temptation to tweak and adjust excel files should be avoided at all costs.
Realistic Forecasts for New Product Launches
Over optimistic sales forecasts are often responsible for inventory that sits and does not move. Salesman are optimists, otherwise they would be in the engineering department….
Coordinate Design Changes and Elimination from Catalogue
Actively Adjust Batch Sizes
Batch sizes should be adjusted thoughout a product life cycle. In particularly at the beginning when we have little or no knowledge on sales, or at the end of product life when sales are in decline. To pay a 10 % premium to a supplier for a smaller batch run is preferable to throwing away half of the batch.
Cash or Trash
Once stock has been identified as obsolete, mark a deadline to try to sell it , return to suppliers at a discount. If that is not possible, scrap it. Don’t spend any more money storing this junk.
Assign Responsibilities to Avoid Blame
Ensure responsibility for inventory (and obsolescence) is clear. Often blame is shifted between production planners for ordering too much, purchasing for unreasonably high minimum batch quantities, the IT department for the forecasting software, and sales for having not achieved unrealistic forecasts. Make sure that the buck stops somewhere and give that person the authority and responsibility to renegotiate the order quantities with purchasing or validating the sales forecasts.