Forecasting and stock obsolescence in whisky production
Abstract:A neglected aspect of inventory management is stock loss caused by breakage, theft, deterioration or obsolescence. Such loss requires financial write-offs that affect financial indicators of a firm's overall inventory management effectiveness. Stock loss or damage related to finished goods is easier to identify than obsolete or dead stock, and firms often focus on finished goods due to their high and identifiable value and a higher risk of becoming unusable and thus obsolete. However, factors that affect finished goods also affect raw materials and work-in-progress. A change in operating environment can introduce factors of stock obsolescence, including a firm's external environment of technological change and demand, or internal procedures such as poor forecasting. Firms need to evaluate whether their current stock levels and write-off policies are reasonable for all inventory classifications to reduce the amount of write-offs or to keep the amount at a low and manageable level, and if not investigate the factors that produce these write-offs. This paper discusses dry goods stock obsolescence and write-offs and the impact of demand forecasting on them at a leading UK whisky producer.
Document Type: Research Article
Affiliations: Logistics Research Centre, School of Management and Languages, Heriot-Watt University, Edinburgh, EH14 4AS, UK
Publication date: 2006-09-01