Excess inventory is inventory that has not yet been sold to customers or used in production that exceeds the projected demand for those items. It is often the result of some type of inventory mismanagement due to overbuying, canceled orders, unpredictable consumer demand, or early or late delivery of goods.
By contrast, obsolete inventory is inventory that is at the end of its product life cycle. It has not been used or sold for a long time or is not expected to be sold in the future. Unfortunately, this type of inventory must be written down or written off, negatively impacting your company’s financial statements.
Ultimately, excess and obsolete inventory occurs because of errors including misalignment between sales and production, not taking into account the cost of inventory in decision-making, and lack of awareness.
While there is no one answer to address excess and obsolete inventory, awareness and focus across business functions, understanding the real impact on working capital and profitability, and measurement against objectives are excellent places to start.
If you are concerned by excess and obsolete inventory in your organization and would like some help, please call us at (310) 539-4645 or visit https://ssgnet.com.