We have been discussing the various factors that influence obsolescence, and none are more common (and avoidable) than misaligned processes.
Recently I was speaking with a group of financial executives, when one of the individuals mentioned that they had continuous problems with inventory becoming obsolete before it was ever consumed. After determining that the forecast data being used was reliable, I turned my attention to their inventory replenishment process. When I asked what their replenishment process was, he responded, “It depends on the volume discounts that our procurement group is able to obtain.” Ahhh. After some further questions in this regard it was clear that their procurement group was being rewarded for reducing cost, and in order to consistently deliver reduced costs they were purchasing large volumes with little consideration for shelf life. There was a clear misalignment between the procurement and inventory management processes.
In regards to obsolescence, use the following questions to guide the development of processes that relate (either directly or indirectly) to the management of inventory.
1. Have we engaged all of the necessary parties who influence inventory management?
2. Do our procedures address all stages of the inventory management cycle, including acquisition, shelf life management, movement, rotation, replenishment, disposal, and recycling?
3. Have we ensured that our inventory management processes are efficient for all stakeholders, while still minimizing inventory investment and maximizing turns?
Retaining effective processes and procedures to guide inventory management decisions and transactions is the key to minimizing obsolescence. The challenge however becomes engaging those who are impacted to reach consensus on decisions and desired outcomes. Consider, however, that the cost off writing off expired or obsolete inventory (which are technically assets to the organization) is most often considerably higher than the investment of time required to develop and engage others in implementing effective procedures.
Supply Strategy Quiz:
Your action for this week is to review the processes and procedures that may impact your management of inventory to determine if they support or hinder your inventory management objectives. This might include consideration of processes or procedures for forecasting; replenishment, sourcing, stock management or transportation. If this step is missed and processes remain misaligned, any efforts to reduce obsolescence will be short lived.