What is Negative Inventory and How Can you Prevent it?

Obsolete is different from slow-moving inventory in a few ways, but mostly due to its reaching a particular timeline. Slow-moving inventory can also continue to be sold after adjusting to price, marketing, and other efforts to get it out the door. A year seems like a short time, but in terms of the product lifecycle, and changes in the market—things move quickly—and a lot can change in a year. Supply chain disruptions, like delays or raw materials shortages, can also lead to obsolescence. If a company receives materials too late to capitalize on a trend, the finished products might well miss their market window.

Increased Storage Costs

Even if he spent all night slinging crystal by the teenth, the most he could make was a couple of grand — and that was when they weren’t getting into trouble with rival dealers for selling on their territory. If Gus was killed and bookkeeping and payroll services Lalo survived, then the Salamancas would’ve been able to reclaim their power. Ever since Hector gunned down his partner Max in front of him, Gus was determined to bring down the Salamanca cartel and wipe out the entire family. By the time Breaking Bad begins, the Salamancas’ criminal empire is still operational, but it’s nowhere near as powerful as it once was, since Gus has dominated most of the market. Eventually, the only Salamanca left is Hector himself, who Gus kept alive to force him to watch the rest of his family die. The description given above is a grand illusion of a well-functioning enterprise.

Inventory Management Software and Dead Stock Analysis

Dead stock is not the same as excess inventory ordered for a specific purpose. If you know a certain product is hot right now, and you buy extra, that isn’t dead stock. Employees should be trained on the proper inventory management procedures, including how to enter inventory data correctly, how to conduct inventory counts, and how to use the inventory management system. With the right application of tools and tactics, your business can minimize both the total volume of dead stock and the impact of obsolete inventory on your bottom line. Next, invest in demand forecasting tools that can combine historical and current sales data with market insights to help you understand how demand conditions will change over time. No matter the effort, preventing obsolete inventory altogether is nearly impossible.

• Businesses can employ various strategies to manage unsellable stock, reduce waste, and even create opportunities for goodwill and community support.
• Also called excess or dead inventory, obsolete inventory is inventory that has reached the end of its product lifecycle.
• Investing in advanced inventory management software can help you successfully identify changes in demand and plan in advance to tackle various unforeseen circumstances.
• Take control of your entire business, from supply chain to financial with X3.
• Insufficient inventory management often leads to overstocking, elongated lead times, and slow-moving items accumulating unnoticed.
• After a couple of days, you may find that you have double the quantity of an item in your inventory, and your holding costs increase.

What Is the Real Cost of Dead or Obsolete Inventory?

A contra asset account may include an allowance for obsolete inventory and an obsolete inventory reserve. When the inventory write-down is small, companies typically charge the cost of goods sold account. However, when the write-down is large, it is better to charge the expense to an alternate account.

What Is the Process for Writing Down Obsolete Inventory?

• It shows up like this in your system because you have a poor system to manage your inventory.
• Excess inventory takes up space and may require additional storage facilities, which can be costly.
• Using production, purchase, inventory storage cost metrics, and historical sales data, you can determine if an SKU should be kept, discontinued, or retained with some modifications.
• Other ways to sell dead stock include exploring new sales channels where there may be a market for these products and reaching out to partner companies that may find a use for the dead stock.
• Some tools, such as Unleashed, can even help to automate the forecasting process based on your recorded inventory data for each product.
• A write-down occurs if the market value of the inventory falls below the cost reported on the financial statements.

However, one significant challenge that many businesses face is dealing with obsolete inventory. This not only takes up valuable warehouse space but also ties up capital that could be better invested elsewhere. Another thing we can do is to set a Certified Bookkeeper minimum quantity of raw materials we can order at one time.

If a product is known to expire after a certain period, you can set alerts to when a product is reaching that point. As stock ages, it is more likely to break or incur other problems when sold, which could mean increased returns, and so the closer your inventory gets to ‘dead stock,’ the more risks there are. New technologies are allowing businesses to receive ongoing inventory updates with the help of perpetual inventory techniques.

Identify the sources of dead stock inventory

• On a lighter note, GAAP allows for tax deductions on obsolete stock if sold, donated, or destroyed.
• Businesses can also offer value to customers by combining dead stock items with popular products, incentivizing purchases, and reducing the risk of stagnant and unsold inventory.
• A just-in-time inventory strategy allows you to order small quantities more frequently, helping to eliminate overproduction or over-ordering.
• Our experts collaborate closely with your team, conducting thorough assessments to identify specific pain points.
• This is essential for identifying slow-moving items early on and enabling taking prompt action.

One of the most common causes of excess inventory is overproduction, where a business produces more of a product than is currently demanded by consumers in the market. Primary causes for this include a misjudgment of market demand or an overestimation of sales. Poor inventory management is the inability to effectively manage the flow of goods and materials into, within, and out of a business. It can lead to a number of problems, including stockouts, excess inventory, obsolescence, and high carrying costs.