According to me â€œnoâ€. It is a partial indicator, at the most. I need to elaborate. Inventory could be in the form of Raw Material, Indirect Materials, Machinery Spares, Work in Progress and/or Finished Goods.
Different reasons could be attributed to what has caused accumulation of nonmoving inventory in each of the above cases, and of course corrective steps should be taken by reviewing related planning, procurement and production processes, to see that avoidable accumulation of inventory does not happen.
Since inventory has a value in the books, and write off or disposal as scrap has an impact on the bottom line, we need to examine future usability of the inventory in its present form than merely willing to absorb the loss in the books.
In this context, age-wise analysis of non-moving inventory is only an indicator of possible obsolete material. Our focus should be on future use of the material in normal course. While the problem looks simple, usually large number of items, and high volume of transactions make it difficult, unless we design innovative MIS reports which highlight potential obsolete items on a periodical basis.
In the case of WIP and Finished Goods, parameters to identify non-moving inventory may be different from those of Raw Materials, and may not depend only on aging. If your manufacture involves batch production, it is possible that some goods, belonging to earlier batches, may be lying on the shop floor, and may have no future but may not get highlighted, unless we take a report on WIP on floor, belonging to batches, other than the current ones. In the case of Finished Goods, if not supported by a customer order, it is nonmoving inventory, even if produced yesterday.
Here we are talking of data like Customer Orders, and â€œrunning batchesâ€, to help in spotting nonmoving inventory.
Organizing information relating to customer orders, and continuously working backward to WIP and to Raw Material Level on one side, and taking current Inventory levels, projecting future receipts through Purchase Orders on hand on the other, and matching the data may help us minimize non-moving inventory, rather than depending only on â€œAge-wise Analysis of Nonmoving Inventoryâ€. Of course we need a well-designed information system to help us. Utility of such an application depends to a large extent on how well the Functional Specialist is able to visualize scenarios of inventory accumulation, and looks for signals in the system to report.
Thank you for your attention.
Tulasi S Sastri.
© 2015 Tulasi S. Sastri