For the purpose of this article, obsolete assets are company property (material, equipment, tooling) no longer usable for its intended purpose. While the definition can be used and applied with obsolete inventory (goods for sale to customers), this article is primarily targeted at assets accountable for the company to conduct day-to-day business operations.
Company assets become obsolete in various ways. Technology may render a tool ineffective for its intended purpose. An example can be the advancement from film to digital cameras. In many cases digital cameras offer benefits which eclipse those held by film cameras.
Another way assets become obsolete is through regulatory and compliance changes. As regulations shift, whether through political or industry adoption of emerging practices, tools and materials used change the need for previously adopted assets. Consider how a shift in how companies dispose byproducts make the product, process or end product obsolete.
Other causes for obsolete assets are:
- A product is at the end of its life cycle and production has ceased, especially when a new model is released in its place. Once the item’s service life has elapsed, the manufacturer may consider the item as obsolete.
- Product or service is no longer generating sales. There is a difference between having low production numbers, becoming a niche item, and becoming obsolete. In cases where a product or service is no longer generating sales, a closer review may find another product or service has replaced the outgoing product. An example can be audio cassettes and accessories being phased out by compact discs and ultimately streaming services.
Importance of identifying obsolete assets.
Identifying obsolete assets enables your company to gain maximum value from its product by subsequently reusing the assets on other projects, selling products at a discounted cost, reducing capital gains through reporting losses (see your accountant for more details!), and repurpose the assets on other projects.
Coupled with an effective excess screening program, identifying obsolete assets allows your company to reduce costs through reduction in footprint (takes up less space).
Lastly, your company can reduce costs to administer obsolete assets as the need to inventory, administer and maintain said assets is reduced.
AccountingTools.com shares an informative article titled How to identify obsolete inventory (posted May 23, 2022; accessed July 11, 2022)
https://www.netsuite.com/portal/resource/articles/inventory-management/obsolete-inventory.shtml
Monitor Physical Count Tags
Does your company physically tag assets with the last inventory date/year?
Identify assets with the multiple tags to determine how often and how many times an asset has been inventoried. An asset with minimal use (i.e. long term storage) over an extended period of time may be a forgotten asset no longer needed.
Track the Last Usage Date
Does your company track the last time an item was used, or placed in storage? If so, reviewing assets that haven’t been used in quite a while may also help identify current and future use.
Do you track date of receipt or date placed in service? Sorting your asset listing by these parameters can help older assets that may be candidates for obsolescence review.
Where Used?
What is an asset used on? Is the material used on a specific project or deliverable? Is it a piece of tooling used to create an item? Is the company still producing the project, the deliverable, or using the tools and equipment on a current production item? If not, the asset may be subject for review.
Review Engineering Change Orders
Whenever a product undergoes revision, components, materials, equipment or tooling may no longer be needed.
Engineering charge orders typically identify parts being replaced, upgraded, or removed. Consider reviewing engineering change orders with a certain level of frequency, to quickly identify assets subject to review.
Once you’ve established an effective obsolete asset management system the next step is to solicit feedback from your company’s stakeholders and write down your processes to ensure your procedures enable your asset management system’s success. Next comes training your staff, making procedures available to your stakeholders, and incorporating reviews of the company’s asset management self-assessment program.
How do you identify whether your company has obsolete inventory? Share some of your best practices below ⬇️