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 Businesses need to adopt tools that drive a more agile system — and get rid of their outdated supply-chain components and obsolete practices.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.
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:
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.
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.
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.
Until then, reduce the number of stale products from your warehouse.
Next, let's break down best practices to manage component obsolescence:
Supply Chain 4.0
Modern supply-chain management focuses on the three following areas:
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.
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:
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.
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.
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