What is Inventory Expiration and Why Does it Matter?
Inventory expiration refers to product that an organization can no longer sell. It is often referred to as “obsolete”, “excess” or “dead” inventory. Inventory usually expires after it reaches the end of its sales cycle. Naturally, expired stock is a financial loss for an organization. Not only is the stock unusable, but it must also be stored, handled, and finally, disposed of. There are many reasons for inventory expiration but internally, there are the three categories that are causing excess inventory waste.
3 Reasons Inventory Expiration is Going Unnoticed in Your Warehouse
1. Poor Data Management and Tracking
Having an inadequate inventory system can cost companies millions of dollars in lost revenue. To begin with, inaccurate forecasting of supplies can create either a feast or famine of goods necessary for production. Too much of an item creates a backlog in the warehouse, while too little means shortages for clients and customers. Without an accurate system that can track in/out deliveries, production managers are at the mercy of shipping and receiving. This issue stems from a communication problem between different departments and suppliers. Without a streamlined system to assess needs and order adequate stock, each branch of a comp any is cut off from the rest.
Next, without a cohesive inventory tracking system, some items necessary for production might go unaccounted for, resulting in duplicate orders and overspend. Additionally, “forgotten” stock may expire without notice, perpetuating overspends with reordering and the costs associated in dealing with expired inventory. Simply put, the larger the company, the greater the amount of waste/ expired inventory, and the greater the cost. Without accurate and connected tracking of supplies and shipping, much of this cost will go unnoticed until inventory assessment.
2. Ineffective Purchasing Practices and Warehouse Issues
As mentioned above, when communication and a reliable stream of information are lacking, serious problems involving inventory expiration occur. Inaccurate lead times and ineffective management of stock are obvious causes. More specifically, not keeping accurate accounts of available materials for production and/ or finished units can lead to many delays and lost revenue/ overspend. Warehouse management is the foundation of keeping stock, whether in small or large amounts. Starting with the basics, things like proper product packaging, temperature/ humidity control and even proper storage methods are the cornerstone to running a business that is a loss-free as possible. Even before inventory and shipping management, any stock must be properly cared for, whether it is the raw materials for a product, or the product itself. Shipping methods also play a role in inventory expiration. If a material needed in production or a product is improperly handled, it could easily be damaged and lose its value, either partially or completely. Coupled with faulty warehouse management, this is a potentially damaging situation, especially when damaged materials go unnoticed.
3. Human Error/ not adhering to best practices
Obviously, behind every company, there are the people who work there. Naturally mistakes in inventory can happen, especially when there is no centralized control of a warehouse and its contents. Miscommunication costs money, time, and labour. Inventory that is not appropriately tracked can also be missed by human eyes. Efficiency in a warehouse cannot be understated. Not adhering to basic storage and shipping practices can be just as damaging to a business as “sloppy data” in inventory tracking. For example, items that are often purchased/ combined with each other should be stored close together. Also, rotating stock ensures that the oldest is used first. This use of the FIFO (First In, First Out) storage is a simple step in reducing the amount and expense associated with expired inventory. Once more, communication between warehouse workers and supervisors is essential in keeping wastage down.
Why is Inventory Expiration Important?
First and foremost, expired inventory is a financial loss for a company. Besides the fact that expired inventory cannot be used, it must still be stored, managed, and either sold at a loss, or disposed of at a cost to the company. Before any of this can happen, the stock that has expired takes up valuable warehouse space that would be better used to house useable stock or materials. This has the effect that until the expired inventory can be cleared out, no new materials may be produced or brought in. In turn, this might lead to missing customer deadlines. Furthermore, customer experience suffers in this situation, so the reputation of a company is at stake. It goes without saying that many customers will not give unreliable companies a second chance when there are others in the market.
The expired inventory itself is a serious problem for an organization, as noted above. The stock must be sold off (if possible) at reduced prices. Finding buyers for expired stock requires time and energy be spent on attempting this, drawing away from the actual production and delivery of inventory. Essentially, the expired inventory can stall production and even shipments, causing even greater losses for the organization. Lastly, during these “offloading” periods, any sort of organization, improvement or modernization within a plant/ warehouse is also put on hold, further hindering the company’s progress.
Lastly, aside from food spoilage, many industries today are geared towards seasonal changes (fashion, etc.) or emerging technologies (computers, digital equipment) that can become obsolete in a very short time. Much like spoiled food, out of season clothes and obsolete technology are not of any particular value. The best-case scenario here is that they are sold off, at a price reduction but if unsaleable, the cost must be absorbed by the company.
Inventory Expiration Tracking
Unfortunately, when dealing with perishable items and time in transport, food waste cannot be fully eliminated but it can be significantly reduced.
1-3% of a company’s annual sales result in expired inventory. To put that into perspective, if a company’s annual sales total $500 million, the loss to inventory write offs will be between $5—15 million. So, how much is your organization losing to expired inventory? And how are you tracking your inventory?
The Owl has a world-renowned inventory module which helps organizations with inventory expiration tracking. They are able to keep track of their stock based on near real-time data. Our platform is simple, easy to use, and you’ll never have to manually scrub an Excel spreadsheet again.
See how easy it is to navigate in the video above.
To see if we’d be a good fit for your organization, book a short 15-minute intro call below and start saving your company millions in potentially expired inventory.