Obsolete inventory refers to stock that can no longer be sold at its original intended price due to becoming outdated, damaged or in slow-moving surplus. Causes of obsolescence include:
- Seasonal/fashion products going out of style
- Technological innovations making some items outdated
- Over-production leading to excess stock
- Physical damage reducing marketability
Obsolete inventory ties up working capital without generating revenue. It must be removed from normal inventory tracking and handled separately. Options include:
- Liquidation through clearance sales
- Returning to suppliers, if timely
- Tax write-offs, if applicable
- Donation to charities for damaged goods
Monitoring product sell-through rates helps identify slow-moving items before they become obsolete. Keeping minimal safety stock and responsively adjusting production also reduces risk. Timely identification and disposal of obsolete inventory is important for healthy cash flows and profitability.