Most manufacturing and commercial concerns that hold trading stock find themselves having to write off a certain proportion of their stock value at the end of each financial year in respect of slow moving and obsolete stock. The strange thing is that, although the goods and materials were probably purchased by profit-responsible executives of the comapany, it is usually the financial staff who determine what and how much should be written off each year.
Accountants usually make provision in their accounts for stock which everyone agrees is definitely obsolete and unsaleable in the normal course of business. They also determine the write-off in respect of obsolete and slow moving stock on the basis of the age of the stock or perhaps a percentage of the stock value. Such arithmetically conceived write-offs are in accordance with accounting standards and conventions which require that accounts are drawn up on a reasonably prudent basis. Very often the detail of these various provisions is invisible to other members of the company. Perhaps greater visibility would help your company to establish sensible policies with regards to using or liquidating such stocks.
1. Schedule all obsolete and slow moving stock
With a detailed analysis of such stock, accompanied by an explanation as to just why each item of stock has been classified obsolete or slow moving, the whole management of the company can take executive action to ensure that they are not repeating the same mistakes. If policies and practices continue unchanged, there is some likelihood of increasing the cost of obsolete and slow moving stock each year, whereas you should be taking action to decrease it.
2. Physically separate obsolete stock from current stock
In many companies obsolete stock is only summarised by a schedule annexed to the year-end accounts. In this way only the accounts staff are aware of its existence. In practice, because few people know the details of the stock, and because it is spread around the factory and warehouse, it will tend to remain there year after year without anybody being aware of its stock value classification. If it is physically separated it means far more to every employee than would a list prepared by the accounts department. Obsolete stock has to be tackled as a separate problem and its physical separation from the rest of the stock-in-trade of the company will assist the identification of disposal opportunities.
3. Nominate executive responsibility
Disposal of existing obsolete stock and avoidance of building up new obsolete stock can often be a major task, requiring the full-time effort of an experienced all-rounder in the company.
4. Make factory management aware of the stock
Factory management means not only the works director and manager but everyone down the line from the foreman and charge hands to the administrative staff in production control and planning etc. By modifying slow moving or apparently obsolete stock it may be possible for the manufacturing divisions to bring the stocks into line with present-day designs, thus avoiding duplicated production costs.
5. Make the design department aware of the stock
Again, the design department can play a part in solving the problem. By modifying a proposed design for a new product or part, it is possible that existing stocks, particularly of raw materials and components, can be used.
6. Make the purchasing department aware of the stock
The purchasing department could play a part by ensuring that no purchase requisition is converted into an order before they are satisfied that current slow moving and obsolete stock cannot be used.
7. Accept the reality of obsolete stock
It is sometimes very difficult for management to bring itself to accept the reality of the situation. It is often easier and more convenient to bury the problem and hope that it will go away in time. Rather, accept the reality of the situation and do what you can to liquidate the stocks so that you are no longer paying a stock holding cost in the form of rent, rates, bank interest etc. Try to avoid cluttering your warehouse and branches with stocks which there is no reasonable chance of liquidating without lowering prices and making a special effort.
8. Sell stock back to the supplier
The proprietary article that you may be classifying as obsolete may be so classified simply because your own end product has changed. This does not mean to say that the article could not be used elsewhere. Perhaps the most sensible way for you to de-stock would be for your buying department to arrange for the articles concerned to be returned to the supplier. The supplier may be reluctant to give full credit, but even if you only get a proportion of the cost price by returning them, you will still probably receive more this way than you would by trying to sell the items on the open market. Many suppliers are willing to do this as it is a means for them to make profit and at the same time fosters goodwill.
9. Try auctioning obsolete stock
This is often the fastest way of getting rid of those unwanted stocks, the advantage being that you know your selling costs in advance as they are usually calculated as a percentage of the proceeds. Cash receipt is immediate.
10. Avoid obsolete stock
One of the most frequent causes of obsolete stock is the introduction of a new product, launched with a flurry of enthusiasm by the marketing department but without regard to the fact that slow moving and obsolete stock has been created.
11. Be realistic about stock values generally
The inflation of recent years has tended to increase stock values. Taxation concessions have also encouraged increases. In reality, however, the net realisable value of stock may be decreasing as world markets shrink. Stock valued at today’s inflated cost levels may ultimately only be saleable at a lower market price.
12.Arrange joint buying arrangements
By joining forces with other users of similar materials and components, your joint requirements may equal the minimum production batch size that the suppliers are willing to produce. In this way you will avoid obsolete stock resulting from enforced over-purchasing.
Possibly related posts: (automatically generated)
Liquidation, Wholesale, Bid or Auction? Business Solution, Slow Moving and Obsolete Stock
- Another way to improve responses
- Work from Home Now, Starting your own business
- Opening a craft market shop
- From profit to performance, Marketing Logistics
- Reasons for Small-Business Failure continued
- Cut Company Cars
- Jobs and new Careers exploring
- From profit to performance, Marketing Logistics continue...
- A Glimpse at your future
- Hit the Ground Running, Tracking customers down, Work from Home
Posted by: arlene
Categories:
