Several industries do not give much attention to surplus and obsolete stock because they are not keen on the monetary value involved. Obsolete stock can be defined as the equipments and materials in store which are in good condition and have an economic value, but are no longer subsidiary for the categorical operations of a company due to constant changes in production technology, product design, technological innovation, erroneous codification and erroneous forecasts. The costs of holding obsolete stock in the warehouse can efficaciously lead to a tremendous reduction of profits and therefore, inventory managers should stick to a schedule of customary obsolete inventory reviews. Obsolete inventory occupies nonessential space in the warehouse leading to dispensable storage and handling costs. If the warehouse manager does not spot obsolete inventory as early as possible, then the company will not realize the best salvage value for its obsolete stock, making it compulsory for the warehouse manager to take the obligatory steps of disposing of this type of inventory as early as possible, as the value of this type of inventory declines over time.
Holding obsolete stock is very costly. For instance, costs such as inventory holding costs, security costs associated with holding inventory, preservation costs, inventory stock taking costs, and the costs of employing additional staff for stores work uses a lot of company’s resources. In view of the costs that are associated with this type of inventory, the decision making managers should devise felicitous mechanisms which ascertains that obsolete stocks are at minimum levels in stores. When a stock has been rendered obsolete, it can be sold to employees or another firm at a more frugal price or donated to non profit making institutions such as public schools. Even if this can be termed as a corporate gregarious responsibility, the management will just be coerced to make such a decision as this does not fall under their orchestrations of giving back to the society. This denotes that an organization’s decision makers should endeavour as much as possible to ascertain that obsolete stock is not kept in store by having a customary stock taking procedure to determine those stocks that have been in the stores exceeding a given period of time (Muller, 12-36).
Obsolete stock in stores should be reported as soon as possible and their causes investigated. The management should therefore use proper control mechanisms for them to evade the problem, as it is costly and wasteful. The management should dispose this type of stock as early as possible if there is no use for it in the organization. This is because this type of stock occupies an abundance of nonessential space, increases stock holding costs, its value declines over time, reduces employee morale, may influence some employees to glom, and may cause accidents if not packaged and stored well.
Every organization should have a vigorous stock control department that predetermines stock levels in the endeavour of evading obsolete stocks. These stock levels include the minimum stock level, maximum stock level, reorder level, and an economic order quantity. A stock control system can be efficacious only if stock forecast levels, rate of utilization, and lead time is precise. For instance, inaccuracy in market forecasting can lead to the engenderment of excess products which later may turn to be obsolete. Other factors that need to be factored include manufacturing techniques as poor methods of manufacturing may cause culminated products to remain in store for long and opportune codification. This denotes that the warehouse managers should have expertise in managing the warehouse and evading obsolete stocks (Richards, 11-30).
Works Cited
Muller, Max. Essentials of inventory management. 2nd ed. New York: AMACOM, 2011. Print.
Richards, Gwynne. Warehouse management a complete guide to improving efficiency and minimizing costs in the modern warehouse. London: Kogan Page, 2011. Print.