When inventory is considered to be obsolete, the materials management staff may decide to send the items back to suppliers, accepting a modest restocking fee in exchange. However, a considerable number of inventory items are classified by their sellers as non-cancelable and non-returnable (NCNR), which usually means that the inventory is so heavily modified for the customer that its seller will be unable to resell it to other customers.
Since restocking is not an option for NCNR inventory items, the materials management group must explore other alternatives for reducing the risk of writing off these non-returnable items. The following are all reasonable options for reducing a company's investment in NCNR items, thereby reducing potential inventory losses:
- Field flag. Assign a field in the inventory item master file to be a flag to identify inventory items as being NCNR. Activate it for any items that cannot be returned.
- Manual review. If the company has an automated order placement system, have it use the NCNR flag to identify prospective NCNR purchases and route them to the purchasing staff for manual review. Doing so may result in less ordering of these items.
- Hanging NCNR report. Create a report that identifies the unit quantities and costs of all NCNR items that will be affected if an engineering change order is triggered. This report is useful for adjusting the timing of a change order to minimize the amount of NCNR items in stock.
- Forecasted NCNR report. Use the same NCNR report just described to identify the quantities and costs of all NCNR items to be used in forecasted production. Management can use this to determine whether it should reduce the forecasted amounts to reduce the risk of carrying too much NCNR inventory.
The preceding steps represent useful ways to more closely monitor the usage of and investment in NCNR items.