Effective Management of Slow-Moving and Obsolete Inventory (SLOB): A Vital Pillar of Inventory Control
In the dynamic landscape of inventory control, your warehouse may already play host to an array of slow-moving and obsolete inventory (SLOB). As these products continue to languish in your stock, their presence poses a looming threat to your business’s vitality. In the forthcoming discourse, I shall elucidate a comprehensive strategy to vigilantly monitor and proficiently manage your SLOB, ensuring the enduring profitability of your supply chain and the sustainability of your business.
The term ‘slow-moving’ is aptly employed to delineate goods or products characterized by sluggish turnover rates within a company. On the other hand, ‘obsolete’ pertains to goods or products that have plummeted into obscurity, either due to a lack of demand or the cessation of their production by the supplier.
Table of Contents
- Securing a Profitable Supply Chain
- Unveiling the Nuances of Slow-Moving and Obsolete Inventory (SLOB)
- Navigating the Realm of Obsolete Stock
- Proficiently Managing Slow-Moving Stock
- Embracing the SLOB KPI in Your Business
- Crunching the Numbers: Calculating Obsolete Inventory
- Quantifying Slow-Moving Inventory
Securing a Profitable Supply Chain
Should you aspire to fortify the profitability of your supply chain and, by extension, your entire business, your focus must converge upon a trinity of foundational pillars: service, costs, and inventory liquidity. Today, however, our scrutiny will be particularly acute, zeroing in on the realm of SLOB—slow-moving inventory and its antiquated counterpart, obsolete stock.
Unveiling the Nuances of Slow-Moving and Obsolete Inventory (SLOB)
Let us embark on our exploration by unraveling a fundamental question: what demarcates the demesne of slow-moving inventory from the realm of obsolete stock?
Navigating the Realm of Obsolete Stock
Obsolete stock casts its shadow over products that have fallen into disuse, expired, or become relics of bygone eras. These are the items that must either be disposed of, sold at steep discounts, or even given away, for they have journeyed beyond the realms of saleability. The impact of obsolete inventory on a company’s financial health is profound, as it inexorably forfeits 100% or more of its value, factoring in the costs associated with its disposal.
Proficiently Managing Slow-Moving Stock
Slow-moving inventory, colloquially known as excess stock, aged inventory, or residual inventory, represents products that, while not outdated or hailing from yesteryears, loiter in surplus. The presence of excess inventory begets additional costs, whether through storage expenses or the impending necessity to clear the surplus to accommodate new collections.
Excess inventory, however, does not necessarily equate to obsolescence.
To bring clarity to this labyrinthine inventory landscape and bid adieu to both slow-moving and obsolete inventory, a fundamental tool at your disposal is the calculation of inventory turnover. You’ll find invaluable insights into this subject in my articles on ‘Calculating Economic Order Quantity (EOQ)’ and ‘Formula and Calculation of Safety Stock: 6 Best Methods.’
Embracing the SLOB KPI in Your Business
Your journey to effciently manage SLOB commences with the immediate download of my free Excel template, meticulously designed to facilitate the expedited calculation of the SLOB Key Performance Indicator (KPI).
Crunching the Numbers: Calculating Obsolete Inventory
The journey to quantify obsolete inventory begins with a two-step process:
Step 1: Clearly demarcate the products constituting your active inventory from those relegated to obsolescence. This foundational step may be executed manually or entrusted to the automation prowess of Excel through the establishment of pertinent date parameters. In industries such as food or pharmaceuticals, products are intrinsically tied to specific dates, which serve as arbiters of their status—active or obsolete. By invoking Excel’s computational prowess, with today’s date as a reference point and the inclusion of start and end dates for each product, you can expediently differentiate between the new and the obsolete. Any product falling outside the defined date parameters is unequivocally marked as ‘obsolete.’
Step 2: Tally the value of your obsolete inventory. Column F, housing the value of your inventory, serves as the bedrock for the computation of obsolete stock value. This mathematical endeavor can be undertaken manually, with each line of obsolete stock highlighted and the division of its value by the total inventory cost. Alternatively, a pivot table can be enlisted to streamline this process.
Quantifying Slow-Moving Inventory
The path to calculating slow-moving inventory commences with the computation of inventory turnover, denoted as Stock Turn, in column H. The objective is to determine the inventory turnover for each product, achieved by dividing the inventory value by sales, subsequently multiplied by the relevant period.
Once the formula is applied, rendering the results palpable, you are confronted with the task of prioritization. It is imperative to discern which products merit your initial attention. Notably, products categorized as slow-moving are not inherently obsolete. To further refine this threshold, you possess the latitude to align it with overarching stock turnover, average lead time, reorder points, and safety stock levels.
Indeed, the calibration of this threshold should be meticulously tailored to harmonize with the idiosyncrasies of your business. This endeavor will prove invaluable in delineating a robust strategy for managing excess stock.