Obsolete inventory was always one of my favourite supply chain topics. Nothing starts the finger pointing faster than a reference to obsolete inventory. The beauty of it is that everyone’s hands are dirty and thus everyone feels just in their accusations. In my experience, the blaming usually began in purchasing and took the path of least resistance through the organization.
Ultimately, a member representing each implicated group, purchasing, production scheduling, demand planning, product management, engineering, and sales, would get together in a room in order to determine what went wrong (i.e. who was really to blame) and hopefully to come up with a plan to use at least some of the inventory.
Rick Pay recently wrote an article on obsolete inventory “Consider This -- Avoiding Obsolete Inventory”. He identifies the root cause of obsolete inventory as uncertainty in supply and demand and then goes on to identify three tools to help:
- Sales and operations planning (S&OP)
- Auto-replenishment systems
- "Ramp-up/ramp-down" discipline I would add to Rick’s root cause;
I believe that it is our inability to respond to the inherent uncertainties in supply and demand that ultimately are to blame for obsolete inventory. I agree that the tools and disciplines identified by Rick will definitely help reduce obsolete inventory as long as they are approached in a manner that allows for easy simulation and collaboration between different scenarios.
I was fortunate to be part of a successful S&OP implementation that positively impacted many aspects of my organization. One of the noticeable side-effects was that the subject of obsolete inventory shifted from the blame game to a more civil collaboration. In fact, with the right tools, potential obsolete inventory was identified ahead of time followed by agreed upon action plans.
Obsolete inventory went down, but almost as important to the individuals involved was the fact that they agreed and understood the reasons for any obsolete inventory that was created on their watch. The mystery had been solved.
Drop us a comment if you want to share your obsolete inventory story? Let us know how you are winning the battle with obsolete inventory.