Slow-moving & obsolete stock

Every warehouse collects stock that has stopped selling: phone cases for a model nobody buys any more, last season’s colours, spare parts for retired machines. Companies often call it SLOB (slow-moving and obsolete) or E&O (excess and obsolete).

The two words mean different things. Slow-moving stock still sells, just far slower than planned. Obsolete stock has no realistic future demand. Treating a slow mover as dead throws away value; treating dead stock as slow lets it lose value month after month.

Spotting it early is mostly arithmetic:

• Ageing: how long since the item last moved?
• Cover: how many months would current stock last at the current sales rate? 5,000 phone cases selling 20 a month is 250 months of cover, which is effectively obsolete.
• Future demand: is the product being phased out or replaced?

Then choose the exit that recovers the most: stop reordering, move the stock to locations where it still sells, discount or bundle it, return it to the supplier, rework it, sell it to a liquidator, or scrap it. Waiting is rarely free, because value usually drops the longer stock sits.

Finance cares too: when stock is unlikely to sell at its book value, companies set aside a provision or write it down, which hits profit. Good planning prevents the problem upstream with careful phase-out plans, smaller first orders for new or uncertain items, and forecasts that notice when demand is dying.

Measure it the same way every month

1. Ageing: days since the item last moved, in buckets such as 0–90, 91–180, 181–365 and over 365 days.
2. Cover: how many months the stock would last, using the forecast for coming months where you have one, not just last year’s sales.
3. Excess: stock above what you can reasonably use, such as everything beyond 12 months of forecast plus safety stock.
4. At risk: items with a phase-out date, a replacement product or an engineering change, even if they still sell today.

Decide on the economics, not the original cost

What you paid is gone: it is a sunk cost. The decision compares what each option recovers now with what keeping the stock will cost from here on.

The same arithmetic ranks the other exits: moving stock to a branch where it still sells, bundling it with a fast seller, returning it under a supplier agreement or reworking it, each net of handling and freight.

The accounting side

Inventory is carried at the lower of cost and net realisable value (NRV): the expected selling price minus the costs of selling. This is the rule in IAS 2 and in India’s Ind AS 2. If the excess cases will realistically fetch ₹30, their book value must come down from ₹150 to ₹30, a write-down of 4,740 × ₹120 = ₹5,68,800, which hits this period’s profit. Many companies also book a general provision based on ageing, for example a rising percentage of value for stock older than six, twelve and twenty-four months.

Where dead stock comes from

• Launch optimism: first orders sized on hope, before any sales history exists.
• Large minimums: a supplier’s minimum order or a long production run covers years of demand for a slow item.
• Late phase-outs: purchasing keeps buying an item that product management has already replaced.
• Engineering changes: a design change makes old parts unusable overnight.
• Promotion leftovers and returns that never get sorted back into sellable stock.
• Incentives: buyers rewarded for price discounts on large volumes, or sales teams inflating forecasts to secure supply.

Prevention beats clearance

• Phase-in and phase-out plans: set a run-out date, stop replenishing once stock plus open orders covers expected demand to that date, and coordinate the switch to the replacement.
• Smaller first buys for new or uncertain items, with quick re-orders once demand shows up.
• Negotiate minimums, or pay a little more per unit for smaller lots on slow items; the holding saving often beats the price break.
• Postponement and common components, so less stock is committed to variants that may not sell.
• Range reviews that cut the tail of items selling little while adding complexity.

Forecasts that notice decline

Standard methods are slow to see a dying product. Simple exponential smoothing keeps forecasting the old level for a while, and Croston’s method updates its estimate only when a sale happens, so if sales stop entirely its forecast never falls. The TSB method (Teunter, Syntetos and Babai, 2011) updates the probability of demand every period instead, so a run of zeros steadily pulls the forecast down. That makes it well suited to items at risk of becoming obsolete.

Who owns it

Slow and obsolete stock sits between planning, sales, product management and finance, so it often belongs to nobody. Good practice is a monthly review with a named owner, clear authority to dispose, and targets for both prevention (new excess created) and clearance (old excess removed).