Obsolete Inventory (#66)

In this podcast episode, we discuss how to identify potentially obsolete inventory, who should examine it, and how to get rid of it. Key points made are:

  • Form a materials review board that examines inventory for obsolescence. This group includes accounting, engineering, materials management, and procurement personnel.

  • Run a where used report, which lists every product that is stated on a bill of materials. If something is not listed on a bill of materials, you can probably get rid of it.

  • Be sure to deactivate all bills of material when the related products are no longer being used; otherwise, the related parts will still appear on the where used report.

  • Run a last date used report, which states the last date on which a part was used. The oldest items on the last may be obsolete.

  • Leave count tags on inventory items after the last physical count. Later, see which items still have tags on them, which indicates that these items have not been used, and so could be obsolete.

  • Review engineering change order records, which state when certain parts are scheduled to be replaced with different parts.

  • Then summarize all potentially obsolete inventory items and give this report to the materials review board for a decision. The committee focuses in particular on what to do with high-dollar items.

  • Can sell off obsolete parts as service parts, or return them to the supplier (usually for a restocking fee or a credit), or sell them through an auction service, or bring in a salvage contractor, or donate them to a nonprofit in order to get a tax deduction. You could even just throw it away, since this frees up shelf space and reduces the amount of inventory that needs insurance coverage.

  • Review upcoming engineering change orders in advance, to see if any inventory will be rendered obsolete once the change orders go into effect.

  • Only design products using an approved parts list; tends to reduce the amount of different inventory items on hand.

  • Do not buy in bulk, since some of the inventory may never be used.

Related Courses

Accounting for Inventory
Inventory Management