Top Three Root Causes of Obsolete Components in Your Inventory
There are billions of dollars wasted each year on one particular supply chain problem: excess and obsolete components in your inventory. Most often, companies choose to solve these problems with short-term solutions. Instead of looking at the big picture, most companies tend to only deal with the current levels of excess and obsolete inventory, ignoring the problem’s root cause. Reducing and eliminating obsolete components will require a higher level of attention.
Typically, the major root causes of obsolete components in your inventory can stem from newer technology, poor forecasting, an inadequate inventory management system, and long lead times.
Electronic and telecom components for computers, cell phones, tablets, etc. can become obsolete if their technology has advanced. These expensive items are most often sitting in a warehouse somewhere, not being sold and costing the company thousands or millions of dollars. Because advances in technology are happening at a rate of speed faster than manufacturers can deal with, it’s necessary to develop an effective long-term solution to prevent an inventory full of obsolete components.
If the supply chain management does not forecast correctly, it may result in inflated sales projections and unnecessary ordering. If there is also lack of historical customer data, the supply chain will be prevented from operating efficiently, causing inventory to become obsolete.
INADEQUATE INVENTORY MANAGEMENT SYSTEM
These days, no company should be without a real-time inventory management system. There simply is no excuse to avoid purchasing essential software which will maintain efficiency and accuracy within your supply chain. With this type of system, you can easily track customers’ buying behavior and have the opportunity to sort your inventory into customized categories.
It’s essential to have an inventory management system customized to your supply chain, which showcases the relationships between your inventory investments and these other factors:
- Lead time and demand variation
- Higher inventory valuation and forecasting
- Location accuracies
LONG LEAD TIMES
In the case of a long lead time, a typical order cycle time is 30 days, but if the required lot size for purchase is 90 days of supply, that can also produce more inventory that is not needed. Long lead times contribute to the problem and can also occur due to complicated processes, late deliveries or other scheduling problems.
The most ideal way to combat the plague of obsolete components is to calculate every specific order based on its demand and service level. If your inventory balance is in check, it will show which items and locations may have too much or too little inventory, therefore, eliminating the rate at which those items become obsolete.
If you have inventory that may be obsolete and cannot be sold or auctioned off through a reseller, they may be partially recycled. There are several third-party companies who can assist your company with handling obsolete components.
AECI is a supply and material management company who buys and sells obsolete or excess electronic component equipment, telecom equipment, and semiconductor equipment. We are able to help companies sell or eliminate inventory, no matter the root cause. Contact us today to learn more about our services.