While an effective inventory management process can minimize obsolescence, in reality, obsolescence is unavoidable. The real issue is not obsolescence itself, but how you manage it.
Ignoring obsolete parts for extended periods of time, in the hopes that it will eventually sell or as a way of avoiding a write off, can be the most detrimental decision you can make for your business.
Not only does it further tie up valuable space, it means that you may miss out on potential opportunities to maximize any residual value.
Even if it will not cover the full cost of the part, disposing of parts at a lesser value will minimizes losses.
To minimize the negative effect of obsolescence, you want to focus on four areas:
Effective forecasting can help ensure you minimize obsolescence by increasing the accuracy of your orders by basing them on historical demand.
Inventory management systems do an excellent job of tracking demand and inventory totals. By using this information to determine demand, you can decrease obsolesce and help limit the amount you order to a number that will be used in a reasonable period of time.
2. Unload Excess Stock
If you discover that you do have excess stock (i.e. you have more stock than is required to meet demand) try to find opportunities to sell it. This may include accelerating sales through marketing and promotion or reaching out to other shops and service centers to see if they are in need of additional supply.
3. Keeping Track of Inventory Age
Understanding the lifecycle of your products and identifying the onset of obsolescence is critical to ensuring you are able to minimize losses.
Using your inventory management system, you can to track the age of all your inventory, then, based on average demand and turnover, you can identify when sales of a particular part are slowing. In doing so, you will know when to decrease or cease ordering as well as when to look for alternative ways to unloading additional inventory.
4. Maintain Accurate Inventory Records
When tracking automotive parts for obsolescence, you need to feel confident in your inventory records. To ensure your records are well-managed and to identify software and process errors, you must conduct regular physical inventory counts.
This will allow you to reconcile your records to the actual counts, so you have a precise picture of your inventory position.