Did you know that over 25% of obsolete inventory is caused by the first purchase of a product?

And that an even larger proportion of obsolete inventory is due to not planning the phase-out stage of a product properly? Both new and end-of-life products are not the responsibility of the supply chain planning team. Hence, the need for collaboration between product management and supply chain planning.

Product management is a key team to have at the table when trying to reduce inventory. To know why we have to look at the different dials the supply chain planning team have at their disposal when trying to reduce inventory. Simply put, every company has inventory in 3 stages of its lifecycle. A product is either at its new, mature or end-of-life stage.

When you ask your inventory team to reduce inventory, they can only affect inventory that is considered mature. This is the product that is still actively sold and moving. They can reduce inventory by a) ordering more often or b) compromising on service levels. Typically, ordering more often would increase your logistical costs, or it is simply not possible due to supplier constraints such as having to order full containers. Compromising on service levels is definitely not a very popular option. But in other words: their options are limited and will always have an impact somewhere down the line. Whether those are logistical cost increases such as transportation, an increase in price due to smaller purchased quantities or an increase in stock-outs.

This leaves us with new inventory and end-of-life inventory. New inventory are products which still have to start selling, or only just started selling. End-of-Live inventory are the products that do not sell anymore and/or have been discontinued. New product inventory is crucial to get right. Without input from Product Management teams such as market research, lists of alternate vendors and other product information the supply chain planning team is going to have a hard time estimating not only what to forecast, but also where to buy. By having long and short lead-time options available, the supply chain planning team can reduce the risk of new inventory becoming obsolete inventory.

End-of-life inventory, or in other words, obsolete inventory, is hard to get rid of once it’s there. Once inventory is obsolete, heavy discounting or scrapping is the only option. That’s why processes should focus on the prevention of building up obsolete inventory. This can only be achieved if the inventory team knows well in advance (at least a lead time before) when products will be phased out. On the other hand, the supply chain planning team has the responsibility to notify product managers of any downward trends in sales of a product.

Knowing this, it is important to have regular meetings between your supply chain planning and  product management team. The focus should be on sharing key information that will affect each other’s role. Supply chain planning teams have no need for product specifications of your latest and greatest products. So, what do they need to know in order to introduce and phase out products successfully, and preventing  inventory obsolescence?

What the supply chain planning team should know (when it comes to new products):

  1. What is the market segment you’re targeting, how is it priced compared to other existing products and the competition, and what do you expect to sell?
  2. What similar/alternate products do we carry?
  3. Is there a true predecessor item which we can use to estimate a forecast?
  4. When are we introducing the product?
  5. Do we have any alternate vendors available and at what MOQ/Lead time? And do these quantities make sense given your forecast?
  6. Any cannibalization of existing products that you foresee?
  7. Any products that would be bought together with this product?

When you are phasing out old items the following information needs to be shared:

  1. Will the item have a superseding item?
  2. When will we stop selling/marketing the old product? Make sure this is known at least a lead time before (preferably longer) you actually phase it out.
  3. Can we keep selling the product after we de-list and/or deactivate the product?
  4. Do we anticipate customers stocking up on the product because we’re phasing it out?

It is recommended to create a format with all key information that the supply chain planning team needs. In return, the supply chain planning team should share product trends (both positive and negative) with the product team so they can undertake action to either ramp up or ramp down products.

Speak to an expert about your inventory challenges

Ali Zaidi(280px)

Ali Zaidi

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