ESSAY: Accounting

Retail firms are at risk that their inventory will become obsolete. What can a firm do to minimize this risk? What types of firms are most at risk?


Obsolete inventory is the excess inventory in a firm that no longer has demand in the market. Causes of obsolete/excess inventory include poor product design, long lead times, lack of effective inventory management systems, inaccurate forecasting of demand, and poor quality product (Wild, 2017). Excess inventory is detrimental because it affects the profitability and performance of a business as a result of reduced sales income. Therefore, inventory control is a strategy used by most businesses to manage their level of inventory by taking into account the items to buy/produce and the quantity of each.

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Using a comprehensive and efficient inventory tracking system can help a firm manage the risk of obsolete inventory. For example, a firm can use Auto-replenishment systems such as kanbanto or vendor-managed inventory (VMI) to reduce supply uncertainty (Kholopane, 2016). The system helps the suppliers to determine needed inventory hence reducing not only excess inventory and stock-outs but also transaction and handling costs.

Sales and operations planning helps a firm to forecast the correct supply and demand. These strategies allow the firm to offer the right services/products at the right time in the right quantity at the lowest possible price. The firm should also adopt flexible supply chains and operations to help promote customer satisfaction, enhance business performance and profitability, and boost return on investment (Lee, Song & Cheong, 2018). In addition, offering after sales support, promotions, and discounts to the customers encourage them to buy more hence increasing market share and demand.

Another strategy involves avoiding damage of goods in the firm by training employees on how to properly handle goods and implementing policies that enforce proper movement and storage of goods in the firm (Wild, 2017).

Firms facing the risk of obsolete inventory are retail firms, especially the technology-based firms and those that deal with services or products that have technological advantages. For example, a publishing company…

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