In the pandemic era, the growth of the global economy is already moving at a slow pace. An obsolete supply chain may slow down your business further. Generally, an existing supply-chain function may become obsolete within five to seven years. Businesses need to adopt tools that drive a more agile system — and get rid of their outdated supply-chain components and obsolete practices. 

The shift from obsolete practices to advanced supply-chain processes started with “Industry 4.0,” or the digitization of the manufacturing industry. Afterward, integrated optimization strategies based on advanced analytics, blockchain and artificial intelligence in the supply-chain industry have led to Supply Chain 4.0. It has proved the next level transformation in supply-chain management.

Organizations that still rely on traditional supply-chain practices will soon — if not already — face difficulties in streamlining end-to-end processes.   

Inventory Obsolescence

The stock at the end of its product life cycle that has not been sold due to zero demand for a long period without possibility of any return on investment by selling in the future is termed obsolete inventory. This stock should be entered in the balance sheet as working capital and written-off. 

If businesses fail to determine the downward trend of demand, they may have to bear big losses with heavy obsolete stock. Besides obsolete stock, the surplus stock may also be the consequence of fast-changing consumer trends. Businesses need to monitor and realign their stock restoration strategy policies from time to time. Here's how:

• Take action promptly. Business entities must act before the surplus stock becomes obsolete. If the stock is at the obsolete stage, it is too late to act in order to make the stock profitable. 

It is crucial to track stock throughout its life cycle and determine when the sales start to decline. However, this decline should not be due to seasonality. Decide on the action at the right time. The demand can be reviewed by checking reordering parameters. 

In the case you find that forecasted demand is lower than the current stock, use more and more marketing/sales strategies to increase sales before the stock becomes obsolete. 

Thus, it is all about effective inventory policy and determining actual customer demand. 

• Liquidate inventory. Some business entities keep storing their obsolete stock in warehouses so that they do not have to treat it as an expense in their accounting books and to avoid writing it off in their financial report. 

It is not easy for businesses to accept that a large investment in a stock has become a liability for them. But it is a big mistake for them to not liquidate obsolete products at the earliest. They should consider that liquidating an obsolete stock and writing it off in the books will be beneficial for their businesses. It will free up warehouses for profitable stock.

• Automate stock. Supply-chain and inventory management systems can anticipate customer demand for a product by tracking movements. But to be sure, optimize your demand-forecasting, stocking and replenishment processes. 

The advanced technologies, integration of blockchain and A.I., can easily automate the process of tracking a product life cycle. These automation processes use advanced algorithms to anticipate exact demand and help stock management teams to keep stock in the right quantity. Hence, automation helps to adjust replenishment to avoid excess stock. 

• Deal with component obsolescence. Components in a supply chain become outdated when the original manufacturers decide to not produce them further due to low demand. Besides reduced profit, discontinued technologies can call forth the manufacturers to hold manufacturing. But it is not the edge on the end of the way. When it comes back to production, the product should be treated as a new item.

Until then, reduce the number of stale products from your warehouse.

• Match product life cycles with demand. Consumers want better and upgraded products from time to time, and this results in shortened component life cycles. Smartphones and household electronic items are good examples of this phenomenon. Around one-third of these purchases is the result of consumers’ demand to upgrade. Frequent launches with the latest technologies can reduce the life cycle of some electronic components. 

Component Obsolescence

Next, let's break down best practices to manage component obsolescence: 

• Strategize design. You need to work with your product design team to formulate a strategy that can help to manage component obsolescence effectively. For this, get a better insight into the product life cycle forecast based on the crucial information. One can plan to avoid spec-in items that become outdated soon. It will help to lower the obsolescence risk at the production stage. 
• Use practical management programs. Every product is unique with its demand, its position in the market, the component sourcing strategy and various other bases. Therefore, there is no one-size-fits-all solution to managing component obsolescence. When a company implements practical component obsolescence programs along with historical data, it is very helpful to spot excess components. These programs will also help to liquidate components at the best price and provide the best warehousing options as well. 
• Say no to outdated technology. Is it really possible to offer new and advanced technologies to consumers through obsolete and time-intensive systems? The answer is clear: no. Supply-chain businesses can not rely on obsolete processes. 
• Take advantage of service providers. A supply-chain service provider can assist you with managing component stock, tracking each stage of production, forecasting demand, securing stock in warehouses and achieving the highest industry standards using advanced technologies. It will ensure that the right components are available in the right quantities for manufacturing and no obsolete components are being stocked. 

Supply Chain 4.0

Modern supply-chain management focuses on the three following areas:

• Efficiency through automation. The manufacturing companies are attentive to utilize the blockchain, internet of things and data integration technology altogether to build a new supply-chain system. They are going to digitize or automate every monotonous task in the supply-chain processes by using computerized contracts and robotic technologies. This will make supply-chain systems time-efficient, free from paper-based work and human intervention. Analog documents and master databases will be safer than ever. 

Such databases are required to use the latest analytical tools based on machine learning and automation. Consistent expansion in the data pool will make it possible for accurate real-time optimizations.

• More agile operations. Supply chains integrated with A.I., blockchain and IoT-based data management can move more efficiently toward on-demand and agile supply-chain operations. Such dynamic applications can determine internal factors like machine malfunctioning or degradation and external factors such as traffic, weather, regulation, etc. as well in real-time. 

Blockchain technology can revolutionize supply-chain and logistics management by using “smart contracts.” These transactional-based programs show the status of a shipment at every step. It automates the entire system using specific data available other than blockchain ledger. 

An automated blockchain-integrated supply-chain system can streamline:

• Selection of supplier 
• Selection of Supplier Enabled Innovation (SEI) 
• Costs management 
• Routing and dispatching 
• Transactions and exchanges 

Therefore, new technologies include more engaging jobs without human intervention. The only need for human intervention will be for building and maintaining digitized systems in the supply-chain system such as A.I. experts, blockchain developers, data scientists, robotics engineers, IoT technicians, etc. 

• Insightful data management. The advanced supply-chain management requires insightful data and its management using the IoT sensors and scanners and internet connectivity. Such smart products provide tracking and recording updates in real-time and create data sources efficiently.

A.I. and machine learning analyze these new datasets and can forecast accurately. They will further help to increase automation practices and reduce overall planning errors. That is the way that predictive analytics are a crucial element. 

To succeed in achieving supply-chain excellence with a core competency at all levels, organizations need to reassess and update their supply-chain structure. Evaluation and adaptability with the perspective of strategy, process and technology will bring magnificent outcomes.  

Dan Weinberger is CEO of Morpheus.Network.