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100 WAYS: #15 Dispose of Slow-Moving and Obsolete Inventory
– April 26, 2010
Studies have shown that slow moving or obsolete inventory costs approximately 2% a month to sit unused in a warehouse. These costs included prorated amounts for personal property taxes, insurance, finance costs and rental costs. Here are some examples of ways different departments can contribute to excess inventory.
- Marketing – makes over optimistic sales forecasts, promises unrealistic levels of shipping or introduces new products without adequate plans to discontinue old products.
- Engineering – Creates scrap or obsolete material due to design changes or material/process upgrades, sets tolerance levels tighter than process capabilities or than the market demands, or over specifies production requirements and fails to provide for alternatives.
- Manufacturing – establishes unnecessarily long cycle times to provide “padding” in materials requirement planning, provides excess buffer stocks for fear of shortages and allows for excessive machine down time.
- Purchasing – fails to obtain the best price and quality of materials, permits delivery of material before it is needed or establishes unrealistic procurement cycle times.
It is important to not only educate your inventory and warehouse manager on how excess inventory impacts cash flow, but the other departments in your company need to understand the impact they have as well.
Walker Coburn
318.429.2109
wcoburn@hmvcpa.com
Walker is a Senior Auditor in our Shreveport office. He received his Bachelor of Administration in Accounting and a Masters of Accountancy from Millsaps College in Jackson, MS. Prior to returning to his hometown of Shreveport and joining Heard, McElroy & Vestal, Walker worked for KPMG in Jackson and Memphis, and more recently as a financial reporting advisor for FedEx Corporate.
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