“Sales expected a lot but it didn’t work out.” “Yes, well too much was ordered.” “But that one client was going to buy it wasn’t he?” “Who came up with these ridiculous forecasts anyway?” “Maybe we should just wait a while and it will eventually start selling.” “Can’t we just send it back to the supplier?” It’s the subject that nobody enjoys talking about: obsolete stock. It’s similar to a visit to the dentist. You realise that going to the dentist is vital for your health but you don’t exactly look forward to it.
Where does the problem lie
There are 3 causes for the confusion surrounding who’s responsible for obsolete stock:
- Various people and departments are involved with inventory control
- The origin of the problems are often diverse and complex
- It simply isn’t a fun topic
1. Many involved parties
An order picker is responsible for the number of order lines it picks up. Everybody is clear on that. But many different parties are involved in stock building; for instance Sales, Marketing, Purchasing, Inventory management, data and content management and Logistics. The more involved, the easier it is to hide and avoid responsibility.
If you don’t properly organize this, then any argument to make someone responsible is refuted by another:
- Sales said it would be a success
- Sales: “Yes but then Marketing has to introduce it properly…”
- The buyer gave us a forecast to buy 10.000
- Buyer: “That’s true but that doesn’t mean that Inventory management should immediately deposit 2.500…”
- The supplier was going to do a big launch
- Supplier: “Yes, but you couldn’t deliver the goods yet, and we’d already started …”
- Marketing had already prepared an extensive introduction
- Marketing: “Correct, but Item management hadn’t put the correct picture in the system yet…”
Apart from the sheer amount of involved parties, the reasons for obsolescence are diverse. During the entire lifecycle of a product, choices are made which often originate from a conflict of interests . Our multifocal* distribution structures don’t make the process easier either.
*New term within Logistics that highlights the transition from traditional to modern distribution structures, such as bulk deliveries to warehouses on industrial sites (far away) or parcel shipments to private individuals (nearby).
3. Not enjoyable
People prefer to put their energy into interesting topics and not into uninteresting problems. They prefer chances over challenges, profit over loss, to score over playing defence and a new, fresh product over an old obsolete product.
Definition of obsolescence
The solution starts with finding an agreement on the definition of obsolete products. Under what conditions do we call a product or stock obsolete? We often speak of obsolete stock whilst there is really only too much stock. In that case, a product can still reasonably meet the inventory criteria and be kept on stock.
The definition of obsolescence is tailored to each company. You decide what you find acceptable or not, depending on your market, customers, policies and resources. For example, if you are a wholesaler, who claims to have the widest range of products, you will be less likely to say farewell to a slow mover. But when you have limited financial resources or storage capacity, you are forced to make stricter choices.
Therefore, do not apply general guidelines, but create your own definition of obsolescence. Topics that you’d have to address could be; start date, number of customers, development of sales and maximum stock levels in weeks, monetary worth, or volume.
Based on these criteria you can determine your own specific definition, for example: according to our definition a product is obsolete when it has been in stock for at least 6 months, fewer than 3 customers have shown interest in it, the sales in the last 3 months were lower than the 3 months before and the current stock extends beyond 15 weeks, € 10,000 or 1 pallet position.
Once you have a clear definition, you can run periodic reports and pretty graphs to support it.
Who is responsible
As I said before, many people are involved when managing inventory and as such are also involved when obsolescence is created. But with one 1 simple question you can find the person responsible. The question is: Who took the initiative to put the product up for stock? As soon as you answer this question, you have found where the responsibility lies. The person responsible for the birth of a product is also responsible for the funeral!
The number of people in charge is manageable. These are the most common:
– Buyer: at the initiative of himself or the supplier
– Category manager: at the initiative of himself or the market
– Seller: at the initiative of the client
– Management: based on policy and vision
How to organise this
As soon as every product (preferably in ERP) is assigned to the initiator and thus has an owner, the process can begin. Based on your definition for obsolescence, you can prepare a report. Of course, you add loads of nice columns to the report, such as the supplier’s name, brand, logistical data and order and sales history. The more the better: everything is data.
The owner then evaluates his own products and adds a call to action or a comment. It helps to limit and standardize these actions or comments. After this step it is vital that the actions become stricter every time. For instance, starting out you can note “communicate product in newsletter”, but as time passes, you are forced to opt for “write off and destroy”.
For example, you can define 10 steps that become more and more concrete (and naturally more expensive). With each new reporting cycle, it becomes clearer whether the previous action has had an effect or not. And if it managed to keep the products of becoming obsolete. If not, you force yourself to go one step further. Don’t forget, it is cheaper and more efficient to simply sell a product that you have in stock! Returning to the supplier always costs money and margin. Moreover, many companies are not good at this: is that pallet still there, couldn’t it have been returned half a year ago?
Involve your suppliers
The above is largely based on the internal organization. Don’t forget however, that a supplier also has every interest in a vital, well-functioning product range. You can easily make your supplier co-responsible.
It starts by saying this: “Dear supplier, you want for us as a customer to grow and that we put new items in stock and make good returns. A successful assortment is of high importance to achieve this, and we will achieve that together. I expect a periodic report in which you compare our figures with the market and other clients of yours. Furthermore, I expect you to advise me on what needs to change, and I would like to set a goal together for a maximum acceptable amount of obsolescence in numbers of products and money. In addition to advice, you can help me by providing lower inventories, lower cost returns and can share in the costs. Moreover, I don’t feel like stocking new products if there is still too much old stuff lying around. “
To properly organize this process, it is useful to structurally assess your suppliers. Nowadays, simple, affordable software is available that will make this operational within a few days.
Finally, a bad metaphor
Compare this process to the birth of a person. The parents are (whether by choice or not) having a child. You are therefore responsible for your child. Not only for the birth, but also for its education, development and funeral. Fortunately, there is discrepancy in this bad metaphor. Our children usually survive their parents, saving us the funeral. This is not the case with many products we hold in stock. Hmmm, maybe we should contemplate how we can extend the product life cycle of a product…