Obsolete Inventory is stock that's no longer sellable or usable due to expiry, changes in demand, or product updates. It ties up storage space and capital and can increase write-off costs. Monitoring stock ageing, applying demand forecasting, and implementing inventory rotation strategies help reduce obsolete inventory.

It's money sitting on your shelves that you'll never get back.

The Problem With Obsolete Stock

Unlike slow-moving inventory that might eventually sell, obsolete stock has zero future value. It's not "hard to sell"; it's unsellable. And here's the truth: every pound you paid for that stock is gone. You can't recover it through sales, only potentially through write-offs for tax purposes or selling for scrap. Your warehouse becomes expensive storage for waste.

Types of Obsolescence

Physical Obsolescence

Products deteriorate to the point they're unusable.

Expiry dates:

• Food and beverages past sell-by dates

• Cosmetics and skincare beyond recommended use

• Pharmaceuticals and supplements

• Chemicals losing effectiveness

Even before their official expiry, products with short shelf lives become difficult to sell. Nobody wants skincare that expires in two weeks.

Physical degradation:

• The packaging was damaged from long-term storage

• Products affected by temperature or humidity

• Batteries are losing charge whilst sitting

• Textiles are fading or deteriorating

Technological Obsolescence

New versions make old versions worthless overnight.

Examples:

• Previous generation smartphones when a new model launches

• Last year's laptop processors

• Superseded software versions

• Outdated gaming consoles

Technology moves fast. Six months of excess stock can become completely obsolete if manufacturers release updates.

Fashion and Seasonal Obsolescence

Products tied to trends or seasons lose value rapidly.

Fashion:

• Last season's clothing lines

• Discontinued styles or colours

• Trend-based accessories

Seasonal:

• Christmas decorations in January

• Summer clothing in autumn

• Back-to-school supplies in October

• Halloween items in November

These products don't technically "expire," but market demand does.

Market Obsolescence

External factors destroy demand for previously viable products.

Regulatory changes:

• Products banned or restricted.

• New safety standards products don't meet.

• Packaging regulations require changes.

Competitive displacement:

• Competitor launches superior alternative.

• Market shifts to a different solution.

• Consumer preferences change.

Economic factors:

• Products positioned for a market segment that's disappeared.

• Luxury items during an economic downturn.

• Business closures are eliminating B2B demand.

The True Cost of Obsolete Inventory

Direct Financial Loss

You paid for stock that's now worthless. If you're holding £50,000 in obsolete inventory, you've lost £50,000 in capital.

Some businesses can claim tax relief on obsolete stock write-offs, recovering perhaps 20-25%. But you're still losing 75-80% of the value.

Storage Costs

Space occupied by obsolete inventory could hold profitable stock. You're paying rent, utilities, and labour to store waste.

Inventory holding costs typically run 20-30% annually. So that £50,000 of obsolete stock costs you £10,000-£15,000 per year just to keep it there.

Opportunity Cost

Capital tied up in obsolete inventory isn't available for:

• Purchasing profitable stock

• Marketing campaigns

• Business development

• Equipment upgrades

Disposal Costs

Getting rid of obsolete inventory isn't always free:

• Skip hire for physical disposal.

• Recycling costs for certain materials;

• Labour time sorting and processing.

• Documentation for regulatory compliance.

Some obsolete inventory can't just be binned. Electronics require proper recycling. Expired chemicals need specialist disposal. Food waste has regulations.

Impact on Metrics

Obsolete inventory skews your performance metrics:

• Inventory turnover looks worse than reality.

• Inventory accuracy suffers.

• Space utilisation appears inefficient.

• Financial reporting is distorted.

How Obsolete Inventory Happens

Poor Demand Forecasting

Overestimating future demand is the most common cause.

You predicted 1,000 units would sell. Actual demand was 400 units. Those remaining 600 units sit. Fashion changes, new models launch, season ends. Suddenly, they're obsolete.

Demand forecasting requires data analysis, not optimism.

Lack of Inventory Rotation

Products sit at the back whilst newer stock sells from the front. By the time you reach the old stock, it's expired or outdated.

FIFO (First In, First Out) and FEFO (First Expired, First Out) systems prevent this.

No Stock Age Monitoring

Without tracking stock age, you don't spot problems until it's too late.

That batch of products has been sitting for 18 months. You only notice when trying to sell it and discovering it's no longer relevant.

Poor Product Lifecycle Management

Not anticipating or responding to product lifecycle changes.

Scenario: Manufacturer announces new model launching in three months. You keep ordering standard quantities of the current model. Launch happens, your stock becomes obsolete instantly.

Overbuying for Discounts

Bulk purchase discounts tempt you to buy more than needed.

Save 20% buying 500 units instead of 200? Sounds good until 300 units become obsolete before selling. That 20% saving costs you 150% in obsolete stock.

Returns and Customer Changes

Customers return products that then can't be resold:

• Expiry dates are too close

• Packaging damaged

• Product updated since return

• Seasonal relevance passed

Or customers cancel large orders after you've stocked specifically for them.

Preventing Obsolete Inventory

1. Implement Stock Age Tracking

Modern warehouse management systems track how long each item has been in stock.

Set alerts:

• 60 days: Review product performance

• 90 days: Consider promotion or discounting

• 120 days: Aggressive clearance action

• 180 days: Dispose of or write off

Don't wait until the stock is completely obsolete.

2. Use Proper Rotation Systems

FIFO for most products ensures the oldest stock sells first.

FEFO for products with expiry dates prioritises items closest to expiring.

Stock rotation policies prevent the accumulation of old inventory.

3. Regular Stock Reviews

Monthly reviews identifying:

• Products not sold in 60+ days

• Stock approaching expiry

• Products with declining sales trends

• Items affected by market changes

Take action before obsolescence occurs.

4. ABC Analysis for Risk Assessment

ABC analysis helps identify high-risk products:

A items: High value, fast-moving; monitor closely B items: Moderate risk; regular reviews C items: Low individual value but collectively risky; don't ignore

C items often become obsolete because nobody monitors them. "It's only £2 per unit," multiplied by 5,000 units is £10,000 of obsolete stock.

5. Improve Demand Forecasting

Better predictions mean ordering appropriate quantities.

Consider:

• Historical sales data

• Seasonality patterns

• Product lifecycle stage

• Market trends

• Competitive activity

• Economic indicators

Don't rely on "last year plus 10%" for products with short lifecycles.

6. Supplier Agreements

Negotiate terms protecting you from obsolescence:

Sale-or-return: Return unsold stock within the timeframe.

Stock rotation: Supplier replaces ageing stock.

Consignment: Only pay for stock when sold.

Shorter lead times: Order smaller quantities more frequently.

Minimum freshness guarantees: Products must have a minimum remaining shelf life.

These cost you in other ways (higher prices, stricter terms), but reduce obsolescence risk.

7. Clearance Strategies

When stock starts ageing, act quickly:

Progressive discounting:

• Month 3: 10% off

• Month 4: 20% off

• Month 5: 30% off

• Month 6: 50% off or bundle

Better to recover 70% of the value than 0%.

Bundling: Combine slow-moving items with popular products.

Alternative channels: Sell through clearance sites, outlet stores, or liquidation specialists.

Donations: For tax-deductible write-offs with some value recovery.

8. Batch and Lot Tracking

For products with expiry dates, batch tracking and lot control ensure you always know which stock needs selling first.

WMS platforms automatically manage this, directing pickers to the oldest batches.