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Inventory: Your Ticking Time-Bomb, especially obsolete inventory.


I am following the warehouse supervisor as we walk through the storage area. He shows me both the incoming materials and finished goods warehouses. His pen is tapping each box on the shelf as we walk past.


3 more boxes get added to the total. He turns the corner to start a new row and the pen continues tapping on each box that sits there. Like the Energizer Bunny, he keeps going and going and going.


We had just finished discussing the presence of slow-moving and obsolete inventory kept in the warehouse. To give our Kaizen team a rough idea of how much “old stuff” we had in storage, the warehouse supervisor agreed to give us a quick tour. His instructions from the team were “using your pen, tap on each box that has been sitting there for more than 3 years, and we’ll take a quick count”. So off the team goes, following the warehouse supervisor to find out how much “old stuff” we are talking about.


By the time the supervisor is done his tour, the team calculates 30% of the warehouse has been storing material or finished goods that haven’t moved in over three years. It’s all still good stuff: either saleable goods or useful inventory...but only if a customer is willing to pay for it! And with all the changes in the customer ordering patterns, this material is no longer in demand. Back in the Kaizen room, the team discusses the possibility of freeing up valuable warehouse space by removing the slow-moving and obsolete inventory. It sounds like a workable plan until we get input from the finance team. It seems that this non-performing inventory is still sitting on the books at full value. Therefore, we cannot simply scrap it, because that would negatively impact the financial statement if the inventory suddenly were removed. Even though the team knows the inventory is not an asset to the business (in fact, in Lean all inventory is seen as a liability), the team cannot remove it for fear of damaging the company’s financial position with creditors and investors. So, how long should we let obsolete inventory accumulate? It will depend on how long you can stand the sound of ...


One thing is certain: everything needs to be reconciled sooner or later. And the longer we wait, the bigger the bomb will be when it goes off!

“BOOM !!”


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