With spring fast approaching, that means one thing for many people: cleaning house. The same should apply to businesses and warehouses. A physical inventory count can be a great way to determine what stocks are available for parts, goods and other material and clean out what’s excess or obsolete.
Of course, the trouble is figuring out what to actually do when there is inventory a company can’t use or sell. This excess and obsolete inventory can be a great hamper on keeping stocks of in-demand material and products filled. While it is best practice to avoid having too much or something out of date, it’s not always possible to do that. So here’s what to take into consideration to better handle this common business problem:
Proper disposal yields effective results
No amount of prevention can deal with something that’s already happened. Similarly, any preventive measures for obsolete inventory will not handle what’s already in the warehouse. There are various options to consider when trying to actually deal with the excess stock.
The first thing a manufacturer should consider is why a product is excess or obsolete stock, according to Industrial Supply. If it’s merely because it was for a specific customer that no longer needs it, one consideration is to simply offer it to other clients that may also have a use for it.
Sometimes, it’s possible to sell products as is without much need to change them. That said, some businesses may find some adjustments to the items necessary before they could want them. With that in mind, consider the cost of modification and rework. If it’s no more than 20 or 25 percent of the actual cost of the product, a return on investment is still possible. If it’s a finished product, a great idea could be to disassemble the remaining products into parts and sell them individually for repairs and other purposes.
Finally, other methods of disposal involve discount sales and donations. A manufacturer might be able to offload the inventory at a rate of 30 percent of the original value or lower. That’s not a lot, and is a loss, but it’s better than leaving the products unsold. Another alternative is to give to charities or non-profits for tax credit, especially if its completed goods. Companies make up the loss when accounting goes through taxes and applies appropriate credits, saving them money in the long term.
A cure through prevention
Of course, the best method of handling excess and obsolete inventory is not to have it in the first place. CEO Breakthrough noted that preventive and avoidance improvement practices often yielded the best results. However, such measures require acknowledging certain facts on the ground. The first of these is by focusing primarily on maximizing profitability through low initial costs and high sales, manufacturers will always run a risk of accumulating stock that is eventually irrelevant and unnecessary. They must balance out these desires with a sound practice of minimizing inventory.
Secondly, manufacturers must look to any measures that go against the current system of operations. Maximizing technological efficiency through enterprise resource planning software such as Microsoft Dynamics NAV is particularly helpful in this regard. At the same time, employees should adhere to this software and these practices to ensure unnecessary inventory isn’t found the following year. Of course, this also means reviewing the transactional processes that cause excess to exist in the first place. That may present another spring cleaning opportunity: streamlining how transactions occur between suppliers and manufacturer so stocks stay relevant and at an optimal level. In turn, there’s no worry about how to dispose of too many materials, because the company won’t have them.
To learn more ways of improving physical inventory counts, download the Physical Inventory Count Dynamics NAV Module Data Sheet today.