December 07, 2021

Obsolete inventory refers to the stock that becomes unusable due to lack of demand or outdated build. Businesses are usually required to kee...

What causes inventory obsolescence?

Obsolete inventory refers to the stock that becomes unusable due to lack of demand or outdated build. Businesses are usually required to keep certain inventory in stock for manufacturing, distributing, and selling purposes. Inventory obsolescences are often caused due to businesses failing to manage their inventory often because of an ineffective inventory management system. However, sometimes obsolescence may occur due to unexpected reasons resulting in financial losses for the business. Thus, the manufacturers, suppliers, and distributors need to keep an accurate track of inventory, expect shortages, and make arrangements in advance to deal with deficits or obsolescence whenever they might occur.  

We have compiled a list of various reasons which may cause obsolescence and interrupt the flow of manufacturing operations:

• Discontinuation of components 

Sometimes, obsolescence may occur if the manufacturer of specific software, part, or machinery decides to discontinue the production or stops providing the support/updates for the component. It usually happens when they have launched or planning to launch a new component to replace the older one. It can quickly cause obsolescence that may disrupt the production flow.

• Advancements in technology 

One of the leading causes of traditional software, parts, and machinery obsolescence is the improvement in technology. The technological improvements happen at a much faster rate, making the previous technology out-of-date overnight. The manufacturers may require a considerable amount of time to make the required changes to adapt the new technology to cope up with the unexpected obsolescence.

• Lack of demand 

Sometimes, inventory obsolescence occurs due to a lack of demand when new technology becomes available and becomes more popular. As a result, the previous technology’s demand may fall below a certain extent, where the manufacturers consider it a better option to discontinue the product/software.  

• New regulations

 

And of course,  if the government suddenly changes current policies or establishes a new standard for certain products’ manufacturing due to detection of toxicity or ill effects on the environment, it may cause unexpected inventory obsolescence for manufacturers and distributors.  

• Long product life cycle

 

The product life-cycle in certain industries, such as the life-cycle of the Department of Defense (DoD) system, is usually much longer than the technology life cycle. As a result, when the technology changes, they cannot immediately change the system. Thus, it leads to inventory obsolescence challenges until the product cycle ends and new technology can be adapted. 

If you want to employ an effective mitigation strategy to counter these challenges, Resion can help. Get in touch with our team for effective supply chain and inventory management solutions.