Obsolete inventory and how to reduce it Candidate’s Thesis 2025 Logistics program David Ulstein Jonas Lindqvist Examinator Peter Rosén Abstract Obsolete inventory imposes a significant challenge for companies, resulting in increased storage costs, inefficiency and undermining a company’s profitability. The purpose of this study is to develop a framework for effectively managing obsolete inventory by identifying reactive and proactive strategies. The research is built on two central research questions: (i) Which reactive strategies can be implemented to manage obsolete inventory? And (ii) Which proactive strategies can be implemented to avoid the occurrence of obsolete inventory? The research is based on a qualitative approach and an abductive method, combining literature review and qualitative data collection. Data was collected through semi-structured interviews with companies within the Axel Johnson International Group. A thematic analysis was conducted for the identification of patterns, in the form of recurring practices, strategies and management of obsolete inventory. The results suggest that the companies, while recognising the negative financial impact of obsolete inventory, approach and address the issue in varying ways. Most companies rely on reactive measures, such as discounts or promotional campaigns, to dispose of goods. The recommendation includes practical tools to prevent obsolescence through improved management in classification, forecasting and cost awareness. A more structured approach is recommended to ensure consistency and long-term effectiveness. 1 Acknowledgements Firstly, we would like to thank our examiner Peter Rosén for his time, valuable insights and continuous support during this thesis. You always made yourself available for meetings and questions, which greatly helped during the writing process, and for that we extend our sincerest gratitude. Secondly, we would like to thank the Managing Director for Transport Solutions at Axel Johnson International. Your time, industry expertise and contacts has been valuable in shaping this thesis. Thirdly, we would like to thank our correspondents at Abkati, Egil Verne, Forankra and TMT for their time and insights provided during interviews, your help is greatly appreciated. 2 Abstract Acknowledgements Table of Content 1. Introduction ...................................................................................................................................... 5 1.1 Problem discussion ......................................................................................................................... 8 1.2 Purpose & Research questions ....................................................................................................... 9 2. Theory ............................................................................................................................................ 10 2.1 Classification ................................................................................................................................ 10 2.1.1 ABC analysis ......................................................................................................................... 10 2.1.2 XYZ analysis ......................................................................................................................... 11 2.1.3 Combined analysis ................................................................................................................ 12 2.1.4 Kraljic Portfolio Matrix ......................................................................................................... 13 2.2 Forecasting ................................................................................................................................... 15 2.2.1 Croston’s Method .................................................................................................................. 15 2.2.2 Hurdle negative binomial model ........................................................................................... 16 2.2.3 Product lifecycle .................................................................................................................... 16 2.3 Cost awareness ............................................................................................................................. 21 2.3.1 Inventory management policies ............................................................................................ 22 2.3.2 Carrying cost ......................................................................................................................... 23 2.3.3 Sunk Cost .............................................................................................................................. 23 2.3.4 Total Cost of Ownership ....................................................................................................... 24 2.3.5 Third Party Logistics ............................................................................................................. 25 3. Method ............................................................................................................................................... 26 3.1 Choice of method ......................................................................................................................... 26 3.2 Collection of data ......................................................................................................................... 26 3.3 Selection ....................................................................................................................................... 27 3.4 Method of analysis ....................................................................................................................... 29 3.5 Method discussion ........................................................................................................................ 30 3.6 Use of AI ...................................................................................................................................... 31 4. Results ................................................................................................................................................ 32 4.1 Current status in the group ........................................................................................................... 32 4.2 Profiling of case companies ......................................................................................................... 33 4.2.1 Forankra AB .......................................................................................................................... 33 4.2.2 Abkati .................................................................................................................................... 33 4.2.3 TMT Malinen OY ................................................................................................................. 34 3 4.2.4 Egil Verne AS ....................................................................................................................... 34 4.3 Interview results ........................................................................................................................... 34 4.3.1 Forankra AB .......................................................................................................................... 35 4.3.2 Abkati .................................................................................................................................... 37 4.3.3 TMT Malinen OY ................................................................................................................. 39 4.3.4 Egil Verne AS ....................................................................................................................... 41 4.4 Summary of results ............................................................................................................... 44 5. Discussion .......................................................................................................................................... 45 5.1 Reactive strategies ........................................................................................................................ 45 5.2 Proactive strategies ....................................................................................................................... 48 6. Conclusion .......................................................................................................................................... 52 Interview questions ............................................................................................................................ 55 Figures ................................................................................................................................................ 56 Tables ................................................................................................................................................. 56 7. References .......................................................................................................................................... 57 4 1. Introduction Within logistics, stock and inventory management are key notions. Inventory refers to the structures that enable the storage of products, while inventory management refers to the processes and routines that streamline inventory handling. The function of inventory is multifaceted, it acts as a bridge between supply and demand since production and consumption do not need to occur at the same time or place, as products can be stored over a period of time and made available when needed. Another function is to create a buffer, thereby safeguarding the supply chain against variations in lead times and demand. Effective inventory management can also lead to increased efficiency in distribution, thereby enhancing the performance of the supply chain. The demand for inventory is derived from a variety of factors, including buffers to ensure security, reduce lead times, order at economically optimal quantities, and lower transportation costs.1 The need to store products is constant and is a value-creating activity, since it is a trade-off for higher customer service levels. It incurs a considerable cost for companies, where approximately 20% of total logistics costs are estimated to be related to inventory management.2 It is therefore of great importance that inventories are managed in an efficient manner. A common key figure in measuring the effectiveness of warehousing is to calculate the warehouse’s inventory turnover rate. The turnover rate is expressed as the quotient of the cost of sold goods and the average stock.3 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑠𝑜𝑙𝑑 𝑔𝑜𝑜𝑑𝑠 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 𝑟𝑎𝑡𝑒 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑠𝑡𝑜𝑐𝑘 “The formula above shows the calculation of the inventory turnover rate” 1 Cesar Ramirez et al., “A Literature Overview about Warehouse Management,” Int. J. Logistics Systems and Management 42, no. 2 (2022): 153–75. 2 Ramirez et al. 3 Vishal Gaur, Marshall L. Fisher, and Ananth Raman, “An Econometric Analysis of Inventory Turnover Performance in Retail Services,” Management Science 51, no. 2 (2005): 181–94, https://www.researchgate.net/publication/220535238_An_Econometric_Analysis_of_Inventory_Turnover _Performance_in_Retail_Services. 5 As the name suggests, the inventory turnover rate represents the number of times that sold goods are replaced in relation to the average stock, within a period. A higher inventory turnover rate therefore indicates that goods, on average, spend less time in the warehouse. A lower inventory turnover rate on the other hand, indicates the opposite, that the time spent in inventory is prolonged. The average time spent in inventory per product is relevant because it indicates how efficiently the warehouse is managed. A consequence of a higher storage duration is that more capital is tied up in inventory, affecting the company’s financial resources and reducing liquidity.4’5 This creates a more rigid operation, making it difficult for a corporation to be flexible in changes in the market. Furthermore, capital that could be available for investments in growth is tied up. This means that if the corporation wants to keep growing, capital must be sourced from other parts of the organisation or financial institutions, which can limit the returns or attractiveness of the original investment. Figure 1 ” The figure compares demand and current inventory against inventory age. Excess inventory is goods that face a greater risk of obsolescence. Obsolete inventory is goods that have not incurred sales over a period of two years.”6 4 Gaur, Fisher, and Raman. 5 Kwak, “Analysis of Inventory Turnover as a Performance Measure in Manufacturing Industry,” Processes 7 (October 17, 2019): 760, https://doi.org/10.3390/pr7100760. 6 NetSuite.com, “How to Avoid Dead Stock,” Oracle NetSuite, October 15, 2020, https://www.netsuite.com/portal/resource/articles/inventory-management/obsolete-inventory.shtml. 6 Goods can be classified into different sections based on their circulation over a period of time.7 As previously mentioned, goods with long durations in stock increase tied-up capital and negatively impact corporations’ financial performance. Additionally, prolonged time in inventory increases the risk of a product depreciating in value or becoming obsolete. These factors make the subject of obsolete inventory relevant to research, to minimize its financial and logistical impact. In the literature, no consensus was found regarding the definitions of terms. Keywords such as obsolete inventory, non-moving goods and dead stock are all used in different articles, but mostly referring to the same thing. The term does not define what is obsolete at any given time, but rather a state of a good's demand.8 In this thesis, obsolete inventory will be used, referring to items that have had no demand for two or more years. The term excess inventory will also be used, referring to items with more than two years demand of the item in inventory. In today’s competitive market, inventory management plays a central role for many companies, where efficient handling of goods flows is crucial to ensure profitability and smooth operations.9 Despite this, obsolete inventory is something that is overlooked in many companies. The issue of obsolete inventory is often deprioritised either due to a lack of knowledge or because it is not seen as an immediate problem. However, this oversight can potentially lead to significant financial losses, as obsolete inventory ties up capital and leads to unnecessary incurred costs. By developing and implementing an effective framework regarding obsolete inventory, companies can not only free capital but also become more profitable and sustainable.10 This thesis takes its base in the current work within the Axel Johnson International Group, limited to the companies within the Transport Solutions division. The subgroup identifies 7 Deny Jollyta, Gusrianty Gusrianty, and Darmanta Sukrianto, “Analysis of Slow Moving Goods Classification Technique: Random Forest and Naïve Bayes,” Khazanah Informatika : Jurnal Ilmu Komputer Dan Informatika 5, no. 2 (December 29, 2019): 134–39, https://doi.org/10.23917/khif.v5i2.8263. 8 Richard Grover and Christine Grover, “Obsolescence – a Cause for Concern?,” Journal of Property Investment & Finance 33, no. 3 (April 7, 2015): 299–314, https://doi.org/10.1108/JPIF-02-2015-0016. 9 Ramirez et al., “A Literature Overview about Warehouse Management.” 10 Grzegorz Chodak, “The Problem of Shelf-Warmers in Electronic Commerce: A Proposed Solution,” ResearchGate, July 7, 2020, https://www.researchgate.net/publication/342750503_The_problem_of_shelf- warmers_in_electronic_commerce_a_proposed_solution. 7 obsolete inventory as a potential problem since it can undermine profitability for the companies within the group. This thesis’s vision is to spread knowledge about possible consequences regarding inventory management. And to create a framework that provides companies with the tools necessary to optimise their inventory management and seize the financial benefits that proactive handling of obsolete inventory can bring. 1.1 Problem discussion There’s an important issue that many companies face in the management of obsolete inventory. This situation presents several challenges that can negatively impact the company's profitability, making it a key issue for effective inventory management and business strategy. Obsolete inventory can affect a company’s revenue without the company understanding why. There is often a misconception that goods in inventory do not carry a cost, and therefore, hidden costs for the company occur. Obsolete inventory ties up capital that could be used more productively. The longer items are stored without selling, the more capital is tied up in the organization. This capital could potentially have been invested in more in-demand goods or other business opportunities that could provide quicker returns. The company finds itself in a situation where it cannot utilise its resources efficiently, which hinders growth opportunities. Another problem is the increased storage costs. Products that are stored for long periods require more warehouse space, which means higher costs for storing them. In addition to warehouse rental, this may include increased costs for staff, insurance, and other logistical functions needed to manage the goods. Over time, this can become a burden on the company's financial results. These storage costs do not always correlate with increased revenue from sales of the goods and the better choice can be to write off inventory even if it is in working condition. There is also a risk that inventory decreases in value over time. If the products are perishable, or if market demand changes and decreases for the item, the company may be forced to sell the goods at a lower price or, in the worst case, write them off entirely. This results in lost revenue and decreased profitability, while the company risks giving the impression of inefficiency in its inventory management. Additionally, this can create unhealthy price competition, where customers always expect to find discounted prices, undermining the long-term value of the 8 brand. Finally, obsolete inventory takes up shelf space that could be used for more popular items, meaning the company misses out on opportunities to meet customer demand for higher-selling products. This can result in lost sales opportunities and dissatisfied customers who cannot find the products they are looking for, which in turn affects customer loyalty and long-term sales. In summary, managing obsolete inventory presents a complex challenge for companies, impacting capital utilization, storage costs, and revenue streams. To maintain profitability and efficiency, a well-planned inventory management strategy and product rotation are essential. Companies must find ways to minimise the risk of obsolete inventory and instead ensure that capital is used in a way that generates value and drives the company’s long-term growth. 1.2 Purpose & Research questions The purpose of this study is to develop a framework for effectively managing obsolete inventory. By researching the underlying causes of obsolete inventory, this thesis aims to propose suitable strategies for minimizing these types of goods. i) Which reactive strategies can be implemented to manage obsolete inventory? ii) Which proactive strategies can be implemented to avoid the occurrence of obsolete inventory? 9 2. Theory In this section, three inventory management areas will be presented: classification, forecasting and cost awareness. These areas are relevant because they provide a comprehensive understanding of different strategies that can be used to manage obsolete inventory. 2.1 Classification Classification is a method in inventory management to categorize goods based on different criteria. This method can help identify patterns or trends, especially when managing a broad assortment portfolio. Some established methods for classification include the ABC, XYZ, combined analysis and Kraljic’s portfolio matrix. 2.1.1 ABC analysis An established method for the classification of goods is the ABC analysis. Its primary purpose is to identify the goods that burden the cost of inventory the most and groups goods according to their use frequency and value. The method builds upon the pareto principle, which states that 20 percent of the causes stand for 80 percent of the effect.11 This classification method divides inventory into three different categories, denoted A, B and C. Goods placed in category A represent 20 percent of the total amount of goods and 80 percent of the value. Goods placed in category B represent 30 percent of the total amount of goods and 15 percent of the value. And goods placed in category C represent 50 percent of the total amount of goods and 5 percent of the value. The value for each good is calculated by multiplying the rate of consumption and price per unit.12 𝑉𝑎𝑙𝑢𝑒 = 𝑅𝑎𝑡𝑒 𝑜𝑓 𝑐𝑜𝑛𝑠𝑢𝑚𝑡𝑖𝑜𝑛 ∗ 𝑃𝑟𝑖𝑐𝑒 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 11 Irem Otay, Embiye Senturk, and Ferhan Çebi, “An Integrated Fuzzy Approach for Classifying Slow- Moving Items,” Journal of Enterprise Information Management 31, no. 4 (July 9, 2018): 595–611, https://doi.org/10.1108/JEIM-02-2018-0028. 12 Bijal Pandya and Hemant Thakkar, “A Review on Inventory Management Control Techniques: ABC-XYZ Analysis,” REST Journal on Emerging Trends in Modelling and Manufacturing 2, no. 3 (2016). 10 Share of goods, % Share of value, % A 20 80 B 30 15 C 50 5 Figure 2 "Typical distribution of share of goods and value in ABC-analysis" It is worth noting that the presented percentages are rough and can differ in practice, based on different organisations' desired outcomes but should be seen as a framework. By implementing this framework, the organisation can implement strategies and measures of control best suited for each category of product. Thus, minimising inventory costs whilst maintaining the same customer service. Critique towards the ABC analysis states that dividing goods into three categories makes the method very rough and that the method would yield greater results if more categories were introduced.13 Additionally, the ABC analysis is critiqued since its classification is based on a singular criterion, when there are multiple factors to consider in the classification process.14 2.1.2 XYZ analysis Another method used in the classification of goods is the XYZ analysis. This method can further classify goods based on the categories presented in the ABC analysis and can therefore act as a complement to that method. Like the ABC analysis, this method divides goods into three categories, X, Y and Z. The method differs in its classification criterion, with XYZ basing its classification on variability in demand. Instead of calculating a value like in the ABC analysis, a coefficient of variation is calculated and applied in the XYZ analysis. Goods placed in category X exhibit low variability, a more constant demand. Goods placed in category Y exhibit higher variability, which usually can be credited to trends or seasonal goods. Goods placed in category Z exhibit high variability, irregular and hard-to-predict demand15. 13 Pandya and Thakkar. 14 Otay, Senturk, and Çebi, “An Integrated Fuzzy Approach for Classifying Slow-Moving Items.” 15 Pandya and Thakkar, “A Review on Inventory Management Control Techniques: ABC-XYZ Analysis.” 11 Demand Ability to predict X Constant High Y Varying Medium Z Irregular Low Figure 3 "Classification based on demand and prediction" 2.1.3 Combined analysis By combining the XYZ and ABC analysis a multi criterion analysis can be made. The combined analysis minimises the limitations of ABC and considers variability in demand. Instead of the previous three categories the separate methods provided, goods can now be classified in nine categories. A B C X Constant, High value Constant, Medium Constant, Low value value Y Varying, High value Varying, Medium Varying, Low value value Z Irregular, High value Irregular, Medium Irregular, Low value value Figure 4 "Combination of ABC analysis and XYZ analysis" Further categorization implies that an organisation can more accurately implement the most relevant control measures and strategies on a certain category of goods. A combination of these analyses has been shown to yield greater results in warehouse management.16 Results from the analysis also illuminate areas of improvement in which an organisation should focus their resources on, granting greater operational guidance. 16 Pandya and Thakkar. 12 2.1.4 Kraljic Portfolio Matrix Peter Kraljic introduced Kraljic’s portfolio matrix (KPM) in 1983. The matrix is a basic tool used within the buying function and for supply chain management. The model is set to identify and differentiate organisations' purchasing strategies based on the specific characteristics of the goods and services purchased. The Kraljic matrix is one of the most accurate supplier segmentation tools.17 The matrix proves that all different goods can’t be bought in the same manner. The goal with KPM “is to minimize supply vulnerability and maximize buying power”18 while “matching external resources provided by suppliers with the internal needs of the buying firm”.19 Kraljic portfolio matrix is built on a 2x2 matrix classifying products and services based on two main dimensions. The first one is the impact on profitability. This dimension relates to a product's relevance and impact on the organisations' profitability. It can be quality, purchasing volume, patent, etc. The second one is supply risk. This regards a product's external supply conditions. For example, availability, lead time, width of suppliers, substitutions, etc. Based on the extent of these two factors, the goods are then classified into four quadrants consisting of Strategic parts, Leverage parts, Bottleneck parts and Non-critical parts. Figure 5 "Kraljic four classifications on parts"20 17 Jonathan Webb, “What Is The Kraljic Matrix?,” Forbes, accessed May 9, 2025, https://www.forbes.com/sites/jwebb/2017/02/28/what-is-the-kraljic-matrix/. 18 Robert T. Montgomery, Jekrey A. Ogden, and Bradley C. Boehmke, “A Quantified Kraljic Portfolio Matrix: Using Decision Analysis for Strategic Purchasing,” Journal of Purchasing and Supply Management 24, no. 3 (2018): 192–203, https://doi.org/10.1016/j.pursup.2017.10.002. 19 Anna Dubois and Ann-Charlott Pedersen, “Why Relationships Do Not Fit into Purchasing Portfolio Models—a Comparison between the Portfolio and Industrial Network Approaches,” European Journal of Purchasing & Supply Management, 10th Annual IPSERA Conference, 8, no. 1 (March 1, 2002): 35–42, https://doi.org/10.1016/S0969-7012(01)00014-4. 20 Sanjaykumar R. Gangurde and Amol A. Chavan, “Benchmarking of Purchasing Practices Using Kraljic Approach,” Benchmarking : An International Journal 23, no. 7 (2016): 1751–79, https://doi.org/10.1108/BIJ-01- 2015-0011. 13 The strategic parts are the goods with high profitability impact and high supply risk. These are extra critical for the organisation and invoke extended work. Leverage parts have a high level of profitability impact, but low supply risk. The organisation has better buying power and can source the best deal. Bottleneck parts have a low profitability impact but a high supply risk. These can cause significant problems in production if absent. Non-critical parts have a low profitability impact and a low supply risk. These purchases should be handled on a routine basis and without extended work. Focus should be on cost reduction and simplified processes. Figure 6 " Kraljic's categories and strategic recommendations"21 A primary weakness with the Kraljic model is its qualitative nature. This can result in a subjective approach to weighting and ranking suppliers or commodities.22 Overall, there is a wide consensus that the Kraljic model provides a valuable tool for classifying goods and describing different purchasing alternatives. By classifying purchasing items into the four quadrants, organisations can develop customised strategies to optimise their purchasing power and reduce supply chain vulnerability. The implementation of KPM has shown good results and concretised improvements in cost reduction and supply risk. By classifying goods in accordance with Kraljic before the purchase, the company can conduct appropriate processes for the specific product. The matrix can classify products into 21 CJ (Kees) Gelderman, “A Portfolio Approach to the Development of Differentiated Purchasing Strategies” (Technische Universiteit Eindhoven, 2003), https://doi.org/10.6100/IR569453. 22 Montgomery, Ogden, and Boehmke, “A Quantified Kraljic Portfolio Matrix.” 14 four categories, which gives the company a guideline on how much effort should be put into the specific product, therefore also useful for the management of obsolete inventory. 2.2 Forecasting Predicting future trends or events based on historical data can be referred to as forecasting. Some established methods of forecasting are using Croston’s method, a hurdle negative binomial model and analysing the lifecycle products and internal processes. 2.2.1 Croston’s Method Croston's warehouse management method is specifically useful for goods with intermittent demand, meaning irregular demand with periodic sales. Introduced by Croston in 1972, the method aims to divide the demand into two different estimates: the frequency of demand and the number of units requested on each occasion.23 Croston’s method assumes that the demand during lead time has a normal distribution and estimates the demand per period by separately applying exponential smoothing in the intervals between nonzero demands and their magnitude.24 Croston’s method is an extension of a simple exponential equalisation. Without this method, forecasting and replenishment can lead to inappropriate replenishment levels for items with intermittent demand. With the use of Croston’s method, companies can proactively change their warehouse management regarding intermittent products. It considers the specific nature of intermittent demand and aims to improve inventory management.25 Croston’s method is often used in spare parts warehousing because spare parts are often intermittent in demand. 23 J. D. Croston, “Forecasting and Stock Control for Intermittent Demands,” Operational Research Quarterly (1970-1977) 23, no. 3 (1972): 289–303, https://doi.org/10.2307/3007885. 24 Eric Porras and Rommert Dekker, “An Inventory Control System for Spare Parts at a Refinery: An Empirical Comparison of Different Re-Order Point Methods,” European Journal of Operational Research 184, no. 1 (January 1, 2008): 101–32, https://doi.org/10.1016/j.ejor.2006.11.008. 25 J. D. Croston, “Stock Levels for Slow-Moving Items,” Operational Research Quarterly (1970-1977) 25, no. 1 (1974): 123–30, https://doi.org/10.2307/3007781. 15 2.2.2 Hurdle negative binomial model The hurdle negative binomial model is a model for forecasting goods with intermittent demand and is an extension of other forecasting models.26 Croston’s method laid the foundation for further developments to be made in the forecasting of intermittent demand. Snyder et al, in their article, compare the performance of three different distribution methods based on prediction. The three being poisson, hurdle shifted poisson, and negative binomial distribution, where the hurdle shifted poisson retains elements introduced by Croston and poisson being the benchmark. Comparison of the different models were based on the intermittent demand of spare parts of an automobile manufacturer. The study concluded that no model was greatly superior to the other but noted that the negative binomial distribution had a slight edge.27 Something which was argued is an indication of a need for a more flexible model.28 Further research on the subject has been done and aims to fill the need for a more flexible model. A generalized hurdle negative binomial model is introduced for the prediction of demand for obsolete inventory. When compared to the three previously mentioned models on different inventory management metrics, the proposed model performed well on the given parameters. For periods with higher demand variations and periods with a higher quantity of zero demand the model showed the greatest results.29 Thus, making it a model to be taken into consideration when attempting to forecast the intermittent demand of slow-moving inventory. 2.2.3 Product lifecycle Understanding the product lifecycle can help minimize the occurrence of obsolete inventory. The lifecycle can be split into two perspectives, the first being the lifecycle of internal processes and the handling of goods. The second being the external demand and the lifecycle of the product itself. The first perspective, that of internal processes, can be divided into four different phases: create/prevent, identify/classify, analyze/value and dispose/recycle. 26 G.J. Hahn and A. Leucht, “Managing Inventory Systems of Slow-Moving Items,” International Journal of Production Economics 170 (December 2015): 543–50, https://doi.org/10.1016/j.ijpe.2015.08.014. 27 Ralph D. Snyder, J. Keith Ord, and Adrian Beaumont, “Forecasting the Intermittent Demand for Slow- Moving Inventories: A Modelling Approach,” International Journal of Forecasting 28, no. 2 (April 1, 2012): 485–96, https://doi.org/10.1016/j.ijforecast.2011.03.009. 28 Hahn and Leucht, “Managing Inventory Systems of Slow-Moving Items.” 29 Hahn and Leucht. 16 Figure 7 "The figure shows the different phases and how different actors in the process interact with each other"30 Create/Prevent, the first phase, is where the decision-making process takes place. Decisions on a strategic, tactical and operational level can all lead to the creation of obsolete inventory. Strategic objectives require different departments to cooperate with each other to meet these objectives. In the case of substandard cooperation, management would have to prioritize the bottom line and thus compromise on less prioritized areas. On a tactical level predictive or historical demand forecasts can help minimize the occurrence of obsolete inventory. To accomplish this, managers can utilize information systems and establish close relationships with customers. An important note in the utilization of information systems is that the systems need to be integrated between departments. Since different departments often measure performance in different units, for example in monetary terms, units or time. Careful integration of performance measures is therefore a necessary step to avoid unwanted results. Even if the strategic and operational planning is done well, operational execution of the planning is just as important. Even with top-of-the-line information systems, an organization can fall short if policies that enable effective inventory management are not established. As previously mentioned, decisions on these levels can lead to the creation of obsolete inventory. But that also means that the opposite applies, most opportunities and preventive measures towards obsolete inventory can be done in this phase.31 30 Richard E. Crandall and William “Rick” Crandall, “Managing Excess Inventories: A Life-Cycle Approach,” Academy of Management Perspectives 17, no. 3 (August 2003): 99–113, https://doi.org/10.5465/ame.2003.10954769. 31 Crandall and Crandall. 17 In the next phase, identify/classify, the occurrence of obsolete or excess inventory is recognised. If the organization has an information system in place, it will be able to classify and measure inventory based on different metrics. These metrics could be in time or units, which is helpful in determining whether the inventory is obsolete or excess. Focus on this phase should be in the reasons for the goods becoming obsolete or excess. Understanding the underlying reasons enables decision-makers to make informed decisions for future actions to avoid obsolete inventory. 32 The third step in the model is analyze/value excess inventory. Determining the actual value of the goods is a first step in the decision-making process. Overvaluation can lead to ineffective results when disposing of the goods and could lead to the goods becoming obsolete. A revaluation is therefore necessary to establish the method of disposal and to ensure that the accounting is done correctly.33 Lastly, dispose/recycle deals with the practical disposal of excess or obsolete inventory. To find suitable sales channels, cooperation within an organization is required. Cooperation between departments ensures that the right price is set for each good and communication with customers and suppliers can help find the best outlets for each good.34 Finding alternative uses and markets can enable an organisation to retain its margins while still disposing of excess inventory.35 32 Crandall and Crandall. 33 Crandall and Crandall. 34 Crandall and Crandall. 35 Crandall and Crandall. 18 Challenges Strategies Create/Prevent Aligning strategic, tactical Cooperation and integration of and operational goals with information systems between effective inventory departments, unify management policies performance measures Identify/Classify Classifying goods and Establish a cause-effect understanding why goods correlation for excess and have become excess or obsolete inventory obsolete Analyze/Value Overvaluing inventory Reevaluate goods to determine the actual value of goods Dispose/Recycle Finding alternative uses, Cooperation internally and markets and sales channels externally with suppliers and customers Table 1 "Challenges and suitable strategies in each phase are presented" The second perspective, regarding the lifecycle of the product itself, was brought forward as a tool to help managers navigate increasingly competitive and changing markets. Like the previously mentioned lifecycle model, the classic product lifecycle model is divided into four different phases. introduction, growth, maturity and decline.36 36 George S. Day, “The Product Life Cycle: Analysis and Applications Issues,” Journal of Marketing 45, no. 4 (1981): 60–67, https://doi.org/10.2307/1251472. 19 Figure 8 "A generalized product life cycle curve" 37 Since the model was presented, different variations of it have evolved. The model that’s introduced by Rink and Roden included an additional phase, the pioneering phase, taking place before the introduction. The addition of this phase aims to further develop the model to enable a more nuanced understanding of the lifecycle. These different phases describe the sales trends of a product during its so-called lifecycle, from pioneering to decline.38 Whilst the product lifecycle model can be a useful tool for managerial strategies, certain caution should be taken when implementing it. Since the model is quite simple, identifying which phase a product is in can be difficult. Using it as a normative model to decide which strategy is best suited for each phase, or a predictive model, for when a product switches phase, should be done with due consideration.39 37 David R Rink, Dianne M Roden, and Harold W Fox, “Financial Management and Planning with the Product Life Cycle Concept,” Business Horizons 42, no. 5 (September 1999): 65–72, https://doi.org/10.1016/S0007- 6813(99)80077-9. 38 Rink, Roden, and Fox. 39 Day, “The Product Life Cycle.” 20 Characteristics Challenges Strategies Pioneering High uncertainty and Balancing flexibility Forecasting and risk, limited cash and limited cash estimating cash flow flow flows. Adjust for risk Introduction Limited cash flow, Balancing product Increasing variable debt, high costs failure and acquiring cost and decreasing necessary assets fixed costs Growth High profit, surge in Balancing expansion Revise estimates, demand of operations whilst scrutinize market maintaining low changes. Financial working capital focus Maturity High demand, rate of Balancing quality Quality increase plateaued. and pressure to improvement and Competition and lower costs cost reduction lower profit throughout the organization Decline Drop in demand, Lowering costs, Reinvest capital in very low profit, can avoiding new products, cost be caused by product obsolescence of elimination changes facilities and inventory Table 2 "Characteristics, challenges and suitable strategies for each phase are presented"40 2.3 Cost awareness Cost awareness is important for understanding and managing the economic aspects of obsolete inventory. If an organization is not aware that there are certain costs associated with obsolete inventory, which may be hard to visualize, corrective measures can be difficult to take. Some models that can be linked to cost awareness is inventory management policies, carrying cost, sunk cost, total cost of ownership and third-party logistics. 40 Rink, Roden, and Fox, “Financial Management and Planning with the Product Life Cycle Concept.” 21 2.3.1 Inventory management policies The policies in inventory management are a set of rules conducted by the company for managing and controlling inventory. The goal with such a policy is to be more efficient in handling goods and to fulfil customers’ needs. With these policies in place, the company tries to prevent unwanted stockouts, obsolescence and surprises in inventory management. These policies aim to be preventive but can also act as reactive methods for defining and handling unwanted situations. There is no best practice for an inventory policy, and it is therefore crucial for the individual company to set its own. These policies can be conducted by analysing the company’s inventory regarding demand, carrying cost, lead time and technical development. Some different types of inventory policies commonly used are, Min-Max system, Economic Order Quantity, Just-in-time inventory policy, Two-bin system and ABC classification. The Min-Max is a policy that has a lowest level where the order is placed when inventory falls to the minimum level, the order quantity is set so that the inventory will meet the maximum level. This is an easy applicable policy for goods with a varying demand. Economic order quantity (EOQ) aims to minimise the inventory cost by calculating the optimal order quantity for a specific good. It takes fixed costs, carrying cost, cost per unit and demand into account, which ensures that the order quantity is set to the best replenishment level. Just-in-time minimises inventory as orders are placed only when needed. It aims to lower holding costs and to prevent long turnover rates. The two-bin system policy is a sufficient system for goods with a continuous demand. The system implies that there are two bins of goods where the order is placed when the first bin is empty. The system is to use one bin at a time and take goods out of one until it is empty, then start at the other while an order is placed for the first and then switch back and forth. The ABC classification is a system to classify the value and importance of a good. This helps the company to focus on the most important items and can help increase revenue if managed correctly. It can be a time- and resource-consuming system that requires extended administrative work if the company has a large assortment of goods.41 41 Ritik Luthra, “Inventory Management Polices • Log-Hub,” Log-Hub (blog), September 11, 2024, https://log-hub.com/inventory-management-policies/. 22 2.3.2 Carrying cost Carrying cost refers to all cost associated with inventory and storage of items that would be eliminated if inventory where to be discontinued. The cost incurred by inventory typically includes both variable and fixed components. The main areas where carrying cost is applicated is in batch formation to determine the economic order quantity. Furthermore, in dimensioning safety stocks using backorder costs. Different types of cost can constitute carrying cost depending on the case. Examples of costs in carrying cost is, cost of capital, warehouse cost, cost of handling, insurance and so on. The costs can be fixed (warehouse, administration, personnel cost), semifixed (handling cost, inventory check) or variable (cost of capital, insurance, depreciation). Cost of capital is the interest rate of the capital tied up in inventory. The interest can be determined based on current interest rates for borrowing capital or as an opportunity cost based on the required rate of return from other investments. The cost of capital is commonly decided based on corporate or management policies that expresses a decided return on capital investments. A method to calculate inventory carrying cost is to develop an inventory factor as a percentage of the inventory value. The factor is then divided into a policy-determined capital cost component and a calculation component that corresponds to other costs. Using inventory value as an allocation base might be problematic if there are large differences between items, for example, regarding turnover rates and volume requirements. A solution could be to differentiate the inventory factor at item group level.42 Costs for depreciation, waste and obsolescence can be managed proportionally to the inventory value if the amounts are relatively small or if a rough estimate is sufficient. In case of larger differences between items, a depreciation charge per item group may be more appropriate. Another way to manage the obsolescence risk is not to include the costs in the inventory factor but rather to set limits for the maximum consumption time for order quantities. In Swedish companies, the carrying cost usually goes from 15 to 30%43 2.3.3 Sunk Cost Sunk cost describes costs that have already been incurred and cannot be recovered, regardless of future decisions. The goal is not to consider these past costs while deciding on what to do 42 Stig-Arne Mattsson, Handbok i Materialstyrning, Imlog, 2009. 43 Mattsson, Stig-Arne. Handbok i materialstyrning, Imlog 2009. 23 in the future. It is an established phenomenon that affects decision making and often plays a part as the basis for further investment in projects. Research has shown that the amplitude of decision-making taking sunk costs into consideration leads to wrongful decisions. Arkes & Blumer address this issue in their article regarding the psychology behind sunk cost thinking. They state that the propensity to continue an investment despite negative cash flow is greater when both time and financial means have been invested in a project. “Warren Buffett once famously said “When you find yourself in a hole, the best thing you can do is to stop digging.”44 According to the authors, the phenomenon is often based on a strong desire for projects with a high cost and resource demand to work and not appear wasteful. In a case study conducted, they found that companies that had incurred a sunk cost generated greater confidence in the project and were more willing to invest further resources to fulfil the project. Rather than an outstanding party that did not consider the sunk cost would advise aborting the project.45 2.3.4 Total Cost of Ownership Total cost of ownership (TCO) encompasses all the activities a company undertakes to manage its supply relationships. It goes beyond just the purchase price of goods or services, factoring in other essential tasks like supplier selection and negotiation, technical analysis and evaluation, order management, quality management, inbound logistics, and administrative processes. Holding obsolete inventory increases the TCO. By holding obsolete inventory, a company incurs additional costs that add expenses, which are not taken into consideration. Obsolete inventory takes up warehouse space that can be valuable for the company. This space could be used for more profitable products, or the company could reduce its need for warehouse space. Obsolete items also tie up financial resources that can be used elsewhere, where they can have better profit margins. Obsolete inventory directly impacts a company’s total cost of ownership by increasing the operational cost of managing inventory. Companies with an elevated level of obsolete inventory can face larger TCO than it would be if they managed their inventory turnover more effectively. In the extent, a higher TCO, because of hidden costs in obsolete inventory, would 44 Abhishek Das, “Sunk Cost Fallacy” (S P Jain School of Global Management, 18/4-22), https://www.researchgate.net/publication/367570924_Sunk_Cost_Fallacy. 45 Catherine Blumer and Arkes Hal Richard, “The Psychology of Sunk Cost,” Organizational Behavior and Human Decision Processes 35, no. 1 (1985): 124–40, https://doi.org/10.1016/0749-5978(85)90049-4. 24 lead to the undermining of a company’s ability to maintain profitable and efficient operations.46 2.3.5 Third Party Logistics Third-party logistics or logistics outsourcing has been an upward trend in the last few years. It can be about logistics cooperations, outsourcing, alliances or contractual work. Third-party logistics is often associated with a total solution, a possibility to cover the whole process rather than just a small part of it. Relations between the consumer and producer of the service can range from short to extended periods, and the cooperation between them can be more or less detailed. There are several reasons why a company would be interested in a third-party logistics partner. The decisions can be based on both internal and external factors. The complexity of the logistics service driven by product, process, and market characteristics also plays a part in the decision. For a company, the decision to outsource, when done correctly, can bring advantages. There can be both cost reductions, increased service quality, and better demand adaptation. It can also give the company access to expertise that is not available within the company or to new technology in a seamless manner. With the help of external knowledge, the company can focus on its core competencies. By outsourcing logistics functions, the company can reduce its investments in tangible assets and convert fixed costs into variable costs. For a third-party logistics firm, there are also better opportunities for economies of scale. When outsourcing to a third-party logistics firm, there are some possible disadvantages. By letting someone else do the work, the company can lose valuable information about their processes and products if they are in a competitive market. The existing knowledge in the field within the company can also be lost because of outsourcing. In some cases, the connection with the customer changes and the control of operations may be inadequate.47 46 Franco Visani et al., “Supplier’s Total Cost of Ownership Evaluation: A Data Envelopment Analysis Approach,” Omega 61 (June 2016): 141–54, https://doi.org/10.1016/j.omega.2015.08.001. 47 Konstantinos Selviaridis and Martin Spring, “Third Party Logistics: A Literature Review and Research Agenda,” The International Journal of Logistics Management 18, no. 1 (January 1, 2007): 125–50, https://doi.org/10.1108/09574090710748207. 25 3. Method 3.1 Choice of method In this thesis, a qualitative method was deemed most appropriate. This thesis takes its base in the Axel Johnson International group, focusing on a selection of companies within the Transport Solutions group. A qualitative method is particularly well suited for research aiming to explore processes, behaviour, and underlying causes.48 The choice of method was made with the belief that strategies to manage obsolete inventory cannot be fully understood without the real-world context in which they occur. The qualitative method made it possible to access practical knowledge that would be difficult to capture through quantitative measures. The thesis initially followed a deductive method as relevant theories were reviewed and used to conduct the interview questions and overall research design.49 Although, after empirical insights were developed during data collection, the study was formed to an abductive method. New identifications through the interviews led to the integration of additional theoretical perspectives, enabling more nuanced analysis.50 3.2 Collection of data To collect the needed empirical data, semi-structured interviews were conducted with professionals working within procurement. This interview format was chosen to ensure both flexibility and consistency. 51 The respondents were asked to elaborate on key issues, while the structure enabled comparisons across interviews. A semi-structured format allowed the respondents to reflect on their experiences while ensuring that the core themes of the study were covered consistently across all interviews. An interview guide has been conducted based on the questions at issue, including both predefined questions and follow-up questions to 48Runa Patel and Bo Davidsson, Forskningsmetodikens Grunder: Att Planera, Och Rapportera En Undersökning, 5:E Uppl (Lund: Studentliteratur, 2019). 49 Burke Johnson and Larry Christensen, “Educational Research Quantitative, Qualitative, and Mixed Approaches Fifth Edition,” ResearchGate, accessed May 23, 2025, https://www.researchgate.net/publication/264274753_Educational_Research_Quantitative_Qualitative_and_Mix ed_Approaches_Fifth_Edition. 50Mats Alvesson and Kaj Sköldberg, Tolkning Och Reflektion: Vetenskapsfilosofi Och Kvalitativ Metod, 4:e uppl (Lund: Studentliteratur, 2022). 51 Alan Bryman and Emma Bell, Företagsekonomiska Forskningsmetoder, 3:e uppl (Stockholm: Liber, 2017). 26 allow for flexibility and elaboration. In addition, company data at group level as well as from the different companies has been collected. In total, the number of respondents interviewed in this research was five (5) out of six (6) who were contacted. The interview respondents were selected based on their direct involvement in handling obsolete inventory in the case companies or their knowledge within the field. Respondents were approached via email, and participation was voluntary. Each interview lasted approximately 30-60 minutes and was all carried out on a video call. In addition to the interviews, data from these companies has been shared and used. This data includes warehouse statistics such as total inventory value, value of obsolete inventory and excess inventory. This data, in addition to the interviews, has been used to analyse and map current work. To ensure the accuracy and reliability of the collected material, all interviews were recorded with consent and transcribed. The transcriptions formed the basis of the thematic analysis. 3.3 Selection Axel Johnson International was selected for this thesis based on its extended portfolio of companies, making it easier to access companies of interest to this research. It was also a convenience selection since previous cooperation through one of the authors and the managing director at Transport Solutions had been carried out. Axel Johnson International is part of the Swedish group Axel Johnson, which is a privately owned industry group that is globally present. With a long-term owner structure that focuses on sustainable development and cooperation. They work with an acquisition strategy and the development of these companies, specializing in technical components and industrial solutions. Axel Johnson International consists of over two hundred companies with 5700 employees in thirty-four countries. They are organized into six business groups focusing on different business areas. The business groups in Axel Johnson International consist of Fluid Handling solutions, Industrial solutions, Lifting solutions, Power transmission solutions, Driveline solutions and transport solutions. The business group Transport Solutions has its office in Gothenburg and 27 through convenience selection regarding geographical location, this thesis demarcates on companies within the Transport Solutions group. Figure 9 "An organization chart for Axel Johnson. Selected and interviewed companies are highlighted in green" The companies within the Axel Johnson group that have been further investigated are a strategic selection based on the data from the earlier interviews and information from the group Managing Director of the business group Transport Solutions. This is called a snowball sampling, meaning that the first established contact and interviews with the group manager have led to him recommending and arranging contact with additional respondents.52 The selection based on data is linked to the size of the company, market share and depreciation weighted against inventory value. The interviewees are selected based on their position in the company or group. Both broadly representative individuals for the group and people with specific knowledge of each case companies’ operations have been interviewed to conduct a nuanced thesis. Our contact person is the Managing Director for the Transport Solutions group. With the help of the director, we did a selection process on pre-existing data and his extended knowledge about the 23 companies within the group. From discussions between the authors and the 52 Patel and Davidson, *Forskningsmetodikens grunder* 28 director, information that the producing companies within the group do not experience problems with obsolete inventory was acknowledged. They were therefore removed from the selection. From the remaining companies, we asked the director to choose a few companies that he considered the best from the points brought up earlier. At this point, a convenience selection was made for Scandinavian companies. We ended up with two Swedish companies, one Finnish and one Norwegian company. The companies selected are Abkati, Forankra Sweden, TMT and Verne. Figure 10 "Geographical location of case companies" 3.4 Method of analysis The collected data was analysed using thematic analysis, a qualitative method for identifying, analysing and finding recurring patterns.53 The process involved careful analysis of the transcribed material to identify the patterns regarding strategies, challenges and deficiencies. These patterns were then grouped into themes that reflected on reactive and proactive approaches. 53 Virginia Braun and Victoria Clarke, “Using Thematic Analysis in Psychology,” Qualitative Research In Psychology 3, no. 2 (January 2006): 77–101, https://www.researchgate.net/publication/235356393_Using_thematic_analysis_in_psychology. 29 All interviews were recorded and transcribed to ensure accuracy. The results were systematically compared across participants to identify both convergences as well as divergences. This method allowed for the identification of recurrent strategies and processes. 3.5 Method discussion To ensure the trustworthiness of this thesis, particular emphasis has been placed on transparency regarding the research process. Since the study is based on a selected group of companies within the transport solution group that contain companies in similar sectors, the findings are considered transferable rather than statistically generalisable. Given the limited sample size and the geographical concentration of the companies, further research would be required to make general claims. Instead, the research aims to offer a broader understanding rather than a universal conclusion. The validity of the thesis has been strengthened by closely aligning the data collection with the research aim and the questions at issue. The interview guide was designed to get nuanced perspectives and experiences, which aligns with the qualitative nature of the research. A thematic analysis was applied to identify recurring themes in the material, which further contributes to and enhances the validity. However, it is acknowledged that the researchers' interpretations may have influenced the findings. To enhance validity, the authors initially intended to conduct an interview with a recognised expert and to apply triangulation. Due to time constraints, these steps could not be carried out as the response was delayed. Regarding reliability, all data collection has been recorded and documented. The interview questions were standardised across participants, with minor adaptations depending on language (Swedish, Norwegian and English) and the semi-structured format of the interviews. The involvement of two researchers helped reduce individual bias. Nevertheless, it must be recognised that the researchers’ background and prior understanding may have influenced both what was observed and how it was interpreted.54 54 Patel and Davidson, *Forskningsmetodikens grunder* 30 3.6 Use of AI In this article, AI has primarily been used in the literature gathering process. As a complement to gathering literature within different databases, AI tools have been used to gather peer reviewed scientific articles on relevant subjects to the thesis. Furthermore, it has been used as a tool in the selection process of literature. This was done to give an overview of articles and their research topics and to determine if they were relevant to proceed with. Lastly, tools such as Zotero have been used to save articles and create references. All proposed articles and references have been examined to determine its validity. 31 4. Results In this section results from the conducted interviews are presented. Starting with a status description of the Axel Johnson International group, provided by the managing director of Transport Solutions, and then the results from the different case companies. 4.1 Current status in the group In the initial interview conducted with the managing director of Transport Solutions, a discussion about their current work within the field was carried out. According to the interviewee, the company in question works with standardized policies distributed across companies. There is an exception that applies to spare parts, as these have an intermittent demand that makes them unsuitable for the policy. The group that works with acquisitions buys companies that have a strong corporate identity and well-functioning processes. During acquisitions, inventory value is negotiated, and a clause that ensures that everything in stock is sellable is added to the purchasing contract. During the onboarding phase the inventory is checked, and the policy is implemented. The policy is a depreciation policy that is based on a 50% depreciation if there is more than two years of consumption in stock and a 100% depreciation if there is no movement of the goods after 2 years. The policy is implemented by economists and is purely an accounting policy. There are no guidelines for what happens to the goods after depreciation, and within the group, there is a suspicion that the knowledge and control of the costs of the goods after depreciation are not considered. There are no standardized processes for how goods that have been written off should be managed, whether for sale, conversion or disposal. It is therefore up to the individual companies in the group to form and implement their own processes to reduce and manage obsolete inventory in a way that aligns with Axel Johnson International’s guidelines. 32 (tsek) Inventory 6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% 1 2 3 4 Total Inventory Percent of obsolete inventory Figure 11 "Case companies and their total inventory value plus percent of inventory that is classified as obsolete" 4.2 Profiling of case companies 4.2.1 Forankra AB Forankra Sweden is a company within the Forankra Group. The Sweden division was founded in 1984 and is a supplier of solutions for securing goods in transit on the Scandinavian market. Forankra AB’s operations include securing cargo for all types of transport. They also supply solutions for thermal transportation with climate protection. Furthermore, the company supplies beam and rail systems for bodybuilding in the load carrier market for the optimization of goods handling. In addition, the company also supplies lifting equipment for construction and industrial goods in transport.55 4.2.2 Abkati AB Karrosseritillbehör (ABKATI) provides components for all kinds of trucks and for machines within forestry, agriculture and contracting. They also perform customised gas 55 “Välkommen till Forankra AB | Forankra AB,” accessed May 5, 2025, https://www.forankra.se/forankra- ab/?_gl=1*1ezp727*_up*MQ..*_gs*MQ..&gclid=Cj0KCQjww- HABhCGARIsALLO6XxjIrDHzcbHNQg9qDUgYSixp87Iqtt0R2bsYVnTdy2c8- pMqRRyilEaAjRwEALw_wcB&gbraid=0AAAAAC6UuQuCDI9p7aw_2t8qX-LCZ8AFT. 33 spring solutions for unique needs. Abkati was founded in 1929 and supplies a wide range of products. They aim to provide all the necessary products that customers need for their vehicles and machines. A selection of products that Abkatis’ range includes are work lights, LED-ramps, gas springs, cables, mudguards and relays.56 4.2.3 TMT Malinen OY The company was founded in 1958 and is a bodybuilding supplier, meaning that they sell parts for the superstructure of vehicles. They design and sell quality components for the commercial vehicle industry. TMT is offering customization, innovative solutions and technical know-how to provide safe, efficient and sustainable transport. The product lineup includes locking gear, custom-made toolboxes, underrun and side protection devices, etc. They are providing their products for a wide base of customers in, for example, the maritime industry, original equipment manufacturers, commercial vehicle builders and to the rescue and defence industries.57 4.2.4 Egil Verne AS Verne is a Norwegian company founded in 1950 that works with electric components for cars. In addition, they have a wide range of products for commercial vehicles, forestry and construction industries. Their focus lies in warning lights, work lights and auxiliary lights, but also houses a variety of other components for the vehicles.58 4.3 Interview results The interview results have been recorded and transcribed to, in the best way possible, produce representative answers. The results from the answers have then been grouped and presented under the headings, Background and current status, Process structure, Opportunities and pitfalls and under Sales channels and collaborations. 56 “Om Oss | Abkati,” accessed May 5, 2025, https://www.abkati.se/Om-oss. 57 “TMT Malinen - Crunchbase Company Profile & Funding,” Crunchbase, accessed May 14, 2025, https://www.crunchbase.com/organization/tmt-malinen. 58 “Egil Verne AS,” accessed May 14, 2025, https://www.ao.no/derdubor/M80583/. 34 4.3.1 Forankra AB 1. Background and current status In the interview conducted with the Purchasing Manager at Forankra AB we started with background and present work within the company regarding obsolete inventory. At Forankra AB the conception is that obsolete inventory is not a big problem. They are aware of the subject and the interviewee expresses that they have enlightened the work over time. The levels of obsolete inventory in the company vary, often connected to market fluctuation and demand. Obsolete inventory and excess stock are something that the group is enlightening to prevent tied-up capital, and Forankra continuously tries to improve in their processes. Over the past few years, they have spent more time managing obsolete inventory to become better at preventing obsolete inventory. They have also continuously tried to find new ways of handling obsolete inventory in an economical, ecological and effective way. The company have for example tried a new way of disposal through auctioning but also tries to prevent it by communicating about obsolescence risk. This has been done through a cooperative effort between the purchasing manager and the assortment staff, where the inventory turnover rate for different assortments is shared in the hope of better precautions. 2. Process structure Forankra AB supervises the inventory and with the help of Power BI they can identify articles that are classified as overcapacity before going obsolete. Once every half year, two times per year, Forankra AB brings together the management team to go through obsolete inventory and overcapacity that is expected to go obsolete in the upcoming six months. This is when they decide on proactive strategies for the products expected to go obsolete and decide on how to dispose of obsolete products. They work together to create activities for the goods and decide whether it is being kept from an assortment perspective, if they should conduct sales supporting measures or if it should be scrapped. The measures that the company uses to dispose of products include for example, reaching out to customers regarding customer- specific products. Try and use materials in pre-existing applications or other production lines. If this does not work or the company finds there is no other use for it, they have, since this year, tested a new way to give the products a new life. They have tested to auction out their obsolete inventory through an internet auctioneer to support sustainability thinking. But some articles must be discarded as they may be unique to a customer with an NDA that bans them from selling to others. 35 3. Opportunities and pitfalls When addressing potential challenges in the processes to prevent and manage obsolete inventory the issue with forecasts was brought up. There is a lack of forecasts from the customers except for car manufacturers where the forecasts are often not correct. The lack of forecasts contributes to difficulty in planning and can lead to incorrect purchasing quantities or inventory. The company also notices a weakness in the policy from the group. In some cases when implementing new products in the assortment the implementation process extends in time and the goods might exceed the limit for excess inventory and approach the 24-month rule. This is linked to the fact that nearly 70% of the inventory is imported from Asia, resulting in extended lead times that can reach six months and, in the worst case, up to a year. When implementing new products on the market without certain forecasts and minimum quantities that force large orders, the policy feels like a restraint as it leads to greater obsolescence risk. The processes conducted are made in-house and the company would like to have more proposals or cooperation within the Axel Johnson International group. The company believes that guidance from the group regarding recommended actions, both reactive and proactive, could lead to better processes. For example, guidance in when to discard, suggested divestment opportunities or cooperations in information. The company enlightens the opportunity to become a stronger negotiation party if the group, for example, had a cooperation with the auctioneer instead of Forankra AB itself. Regarding potential opportunities for better control on obsolete inventory in the future, development of a model for carrying costs related to obsolete inventory was brought up in the interview. Such a model could create a better cost overview and decision-making basis. 4. Sales channels and collaborations The company is seeking various opportunities to sell their obsolete inventory to prevent having to discard it. In recent years they have tried different workways, they tried an outlet on their web page, among others, that they thought would be a great idea but without success. They have also sourced for resale channels like SOP an excess stock reseller, or Ullared, a 36 wholesaler, but have conclude that they need someone with more focus on business-to- business to sell larger quantities to prevent increased administrative demand. New for the year is that the company is selling their obsolete inventory through a net auctioneer. This means that the company, when the inventory is classified as obsolete, takes a decision on whether it should be disposed of and in that case hires the auctioneer to auction out the goods. In this way the company can manage to dispose of goods in a way that may still result in profit, net zero or at least reduce the loss. They also avoid the cost of scrapping by using this channel of sale. The company now wishes to instead establish a cooperation in the group in an agreement with Axel Johnson International as a contracting party for a larger business to business auctioneer in the European market to create a better structure and security in external business. 4.3.2 Abkati 1. Background and current status The second interview was conducted with the procurement manager at Abkati. The interviewee has been with the company for one year, with the same position and role as during the interview. Abkati is the largest company within the transport solutions department of Axel Johnson International. The core business of the company is described as that of a wholesaler, “buy and sell”. They have a broad product portfolio of about 13 000 stock keeping units and works proactive and reactively with obsolete inventory. These measures have been implemented recently and was previously done more intuitively with analogue processes. Obsolete and excess inventory is perceived as a smaller issue within the organization. The interviewee acknowledges that it’s a problem from an economic perspective but is positive for customer value and retention. A lot of the products within their portfolio are there for customer retention and therefore move slower. 2. Process structure Obsolete and excess inventory is reviewed monthly with a group of seven purchasers. The group then decides on measures to be taken for the excess inventory, so that it doesn’t become obsolete. The final decision on what to be done is then made by the assortment manager along with the CFO. Abkati also uses an ABC-analysis to categorize their products, based on 37 volume value. The split between each category of the ABC-analysis is 80% of the volume value in category A, 15% in category B and 5% in category C, which represents roughly 10, 15 and 75% of products respectively. Categorization of these products guides the procurement strategy. Purchasers should focus on category A products to get more leverage in negotiating prices with suppliers. Whereas C-products should only be available in stock with little time spent on them. This model is also complemented with Kraljic’s portfolio matrix. With the help of the matrix Abkati can identify which suppliers they should focus more on and in which section problems can occur. When launching new products, the first order is an estimation based on a market analysis. The interviewee emphasized that it’s difficult to predict how a new product will perform. If the product sells well, they can opt to fly the goods to their warehouses and avoid backorders. If the product however does not sell as much as predicted, it quickly becomes a problem and risks becoming excess or obsolete inventory. Abkati uses a product lifecycle analysis to assist purchasing decisions. The idea is to follow the trends of a product to avoid buying too much, too soon or too late. A purchasing program analyses the product lifecycle and does an ABC analysis daily. It then gives recommendations on which products should be purchased or where inventory levels can be lowered. 3. Opportunities and pitfalls The interviewee believes that more can be done to minimize obsolete inventory, a lot relating to the ongoing work that they are already doing today. To continue digitalizing so that overviews of key figures is easily accessible. When more manual work was done it was quite easy for purchasers to, at some level, purchase based on earlier orders. If the purchasers don’t know that models such as the ABC exists, it makes it quite difficult for them to know which inventory levels to reduce or increase. Even though the ABC and product lifecycle has been helpful in their work, there still are practical limitations. Ordered goods still need to have acceptable fill rates on their means of transport, which may mean that optimal order points/quantities can’t fully be achieved. Geopolitical and other external disturbances in the supply chain have made lead times longer, especially for goods from Asia. This increase in average lead times means that Abkati has to order in larger volumes to account for the uncertainty, to avoid backorders. 38 4. Sales channels and collaborations To dispose of excess or obsolete inventory a part of Abkatis strategy is to use various forms of sales support. In collaboration with customer service and marketing they can bring forth a “deal of the month” or have campaigns on the internet. Their main way of disposing of obsolete inventory is through a company whom they have a strong cooperation with. This Danish based organization buys most of the products that Abkati offers to sell at a discounted price. Even in the case that Abkati doesn’t profit off one of these discounted prices, it is still preferred to scrapping since they don’t have the associated warehousing costs for the product. 4.3.3 TMT Malinen OY 1. Background and current status The interview with TMT was conducted with the purchasing manager at the company, who had been in that position for about a year. Regarding the question about obsolete inventory, they are aware of the subject and do not find it a big issue in their company anymore. Due to extended work in recent years, where TMT has focused on proactivity using product group analysis, they have managed obsolete inventory in a way that they are satisfied with. The company have worked with their product width to reduce the number of articles in their assortment. This is part of the assortment analysis and has diminished the assortment from about 4000 articles to about 1900 articles currently. Many articles were only sought after by a few customers in small quantities, often by one customer once a year. These articles have therefore been removed from the assortment to reduce obsolescence risk if they are not necessary from a strategic perspective. The main concern about how TMT’s obsolete inventory occurs is due to market trends in Finland. Especially, the decline in the construction sector has caused a gradual decline in demand. To mitigate risk in demand, about 60% of TMT’s assortment is purchased to stock, and the rest is either made to order or purchased to order. 2. Process structure TMT’s main strategy to reduce obsolete inventory is through product group analysis. These analyses are conducted regularly and focus on addressing the articles' demand and turnover. The assortment groups are analyzed in depth once a year. The tool used for analysis is a business intelligence system, specifically Power BI. These analyses can help the company notice changes in demand in time to take precautions to prevent obsolescence. Some 39 previously best-selling items that have diminished in demand can be addressed in time, and if the demand continuously decreases, the company classifies it as a “kill item”. A “Kill item” is a product that the company no longer sees a considerable demand for and therefore phases out by gradually selling them out and then stops replenishing. The decision-making on the disposal of products is conducted every month, and the reactive measures taken to both prevent and get rid of obsolete inventory are mainly sales-supportive measures. Such as smaller discounts on goods, bundle sales or web campaigns. These sales-supportive measures are conducted in cooperation between the purchasing manager and the sales manager using a list of products that need supportive measures. The company also uses an outlet store on their website to generate sales for preventive purposes. 3. Opportunities and pitfalls As the company has implemented a new ERP system, it has made it easier to generate data that is useful for the company. The system can create lists, analyses and manage discounts. This has resulted in more automated processes than earlier, where manual methods were implemented. The extra data about suppliers and pricing has given an extra dimension to the analysis and results in better decision-making processes about obsolete inventory. The considerable assortment reduction from four thousand articles to nineteen hundred articles has had a significant impact on the occurrence of obsolete inventory. By reducing the number of article variations, the company can focus on the articles generating sales, customers, and work more efficiently to reduce the occurrence of obsolete inventory. This reduction also resulted in easier handling processes for the company’s everyday work. 4. Sales channels and collaborations The company’s main focus on preventing discarding products is to sell them to their existing customers. Through sales-supportive measures and by reaching out to customers known for showing interest in these discounted products, they avoid discarding. They have also worked with their outlet web shop, which they don’t find optimal at the time. There is ongoing work regarding the web shop to develop its potential and to hopefully make the outlet a better experience. 40 4.3.4 Egil Verne AS 1. Background and current status The interview with Egil Verne AS was held with the purchasing manager and product manager who had been at the company for 25 years respectively 1 year. The company have been a family company up until Axel Johnson International bought them and the old culture to not throw away things unnecessarily is still implemented. They always try to find ways to sell the goods and rarely discard them. Regarding obsolete inventory the interviewees has good knowledge in the area and there have been work done continuously to reduce obsolescence. They are always trying to adapt and improve in their processes and with new ERP-systems they hope that they can use the information even better. Obsolete inventory has traditionally been a small problem for Verne depending on several factors. Verne is a niche company with a limited product portfolio, they have large, fixed customers who buy regularly, and many products are universally designed, making them useful in different segments and for a wide customer base. The company have an ongoing down scale in number of articles and stock approximately three thousand different articles now. Not long ago the company acquired two actors in the market. They currently have a higher share of obsolete inventory because of these acquisitions as they also acquired their obsolete inventory. 2. Process structure Egil Verne has an ongoing risk assessment per supplier to quickly identify goods that can become slow-moving, rather than doing quarterly or six-month reviews. The interviewee explained that this is done because of their goal to identify the problem early, before demand reaches zero. A central part of their process is using an ABC-analysis, categorizing products based on volume value. The split for each category is as follows: A-products represent 80% of the revenue, B-products 15% and C-products 5%, where roughly 370 of the 3000 products are A-products. The ABC-analysis is used both in the process of making new orders to suppliers and to identify obsolete inventory in the warehouse. The interviewee points out that there are a lot of different factors at play. Factors such as lifecycle, customer needs and technological aspects. But that this is part of the professional attitude that is needed for their products and suppliers, to continuously evaluate purchases and life cycle value. Analysis of the product life cycle is not done formally but builds on experience from the different purchasers and procurement manager. Since they can’t be sure of how long a 41 products life cycle is, development of a second generation is started when they release the first generation of a product. On the other side of the spectrum, they have certain products that have had minimal changes since their introduction thirty years ago. Highlighting the difficulty of predicting the life cycle. 3. Opportunities and pitfalls The company is in an ongoing process of standardizing their routines regarding obsolete inventory, and it is a subject that they believe they can continue to improve on. Moving from decisions based on experience to having them written down is also necessary for their ongoing ISO certification. Further improvement potential lies in minimizing the time spent on handling obsolete inventory. Egil Verne has had problems with warehouse capacity and reducing occupied warehouse capacity is a prominent issue, resulting in the expansion of their warehouse. The interviewee also explained that in the last three years, they have had multiple different ERP systems. Their previous one, an intermediate one and the current system. It is their opinion that the previous system allowed more logistical analyses to be done, with the new one being more financially oriented. The change of system also meant that they could no longer perform dynamic ABC-analyses and instead must do static ones. Dynamic meaning that the analysis is performed automatically, daily, and static meaning that the analysis is done semi-automatic every couple of months. It also lacks certain flexibility in what functions it can perform. For example, combined analyses such as the ABC-XYZ or the ability to have customized fields is not possible. Long lead times and minimum order quantities with purchases from Asia also requires larger order quantities and inventory, which limits the ability to quickly react to shifts in the market. Geopolitical instability has also affected which modes of transport that can be utilized. So, reductions in lead times through transport by train or flight is hard to coordinate. The interviewees believe that they have a good balance right now, given the company’s size and system limitations but always seek to improve on their routines. 42 4. Sales channels and collaborations The process by which the company disposes of these obsolete goods or avoids their occurrence is mainly done through sales supportive measures. The first step is to try and give discounted prices to relevant customer segments on products that risks becoming obsolete. The second way the company uses is an outlet through their website where they front several products that they want to focus on and want to sell. This is also through discounted prices that is mainly for business customers. The third step is to sell the products through trade fairs and various events that the company takes part in, where selling directly to end customer is an opportunity. They participate in several events and fairs annually that are intended for end users, where there are so called pallet sales and sales on lots of products that the company actively use to sell products that faces the risk of obsolescence. They say that looking for the right customer can be too time consuming rather than using these events and fairs where customers come to find their sale products. The last resort the company can use if they are still left with products after several turns with both discounts and fairs, is to try and cross-sell the goods through a third party. It can be to offer them to other types of companies that have a slightly different angle towards the market. Discarding items are often associated with a cost and the company stands by not throwing away until you have really tried all ways to dispose of it. 43 4.4 Summary of results Category Forankra Abkati TMT Malinen Egil Verne Background Aware of Recently formalized Proactive with Low obsolescence and Current obsolescence, not work, product group due to niche focus Status a major issue; proactive/reactive analysis, and stable proactive and measures, slow- reduced customers, collaborative moving SKUs linked assortment cultural aversion measures; to customer from 4000 to to discarding, auctioning and retention 1900, market increased improved trends impact inventory from communication demand acquisitions Process Biannual reviews, Monthly purchaser Annual product Ongoing supplier Structure Power BI reviews, ABC group reviews, risk review, ABC monitoring, team analysis, Kraljic Power BI, "kill analysis used in decides on reuse, matrix, and lifecycle items" phased purchasing, auction, or tracking guides out, decisions lifecycle judged disposal strategy monthly from experience, aims to formalize routines for ISO certification Opportunities Forecasting Digitalization ERP automation ERP transition and Pitfalls problems, long helping, challenges improved caused loss of import lead times, from long lead times insights, dynamic analysis, policy can limit and transport assortment storage capacity flexibility efficiency, reduction issues, transport limitations if improved and minimum purchasers unaware focus, sees order quantity of tools like ABC benefit in challenges due to continuing Asia sourcing, refinements aims to keep improving systems Sales Net auctioning to “Deal of the month”, Discount sales, Tiered approach: Channels and reduce scrapping, discounts via partner bundles, outlet discounts → outlet Collaborations seeks group-level reseller site, reaches → trade fairs → auction out to cross-selling, partnership customers, web strong shop commitment to development avoid discarding inventory Table 3 "Summary of results" 44 5. Discussion The general perception from the interviews is that all four of the companies are aware of the concept of obsolete inventory and that it entails costs, although the view on the extent of the problem varies. They are actively working with the issue to reduce and prevent the emergence of obsolete inventory, driven by a desire to reduce cost, free tied-up capital and improve efficiency. All companies highlight challenges related to long lead times and minimum order quantities, especially from Asia. This can lead to unhealthy order quantities, which increases the risk of excess stock if demand does not meet the forecast. A common and prioritised strategy for dealing with excess or obsolete inventory is to conduct sales-supportive measures. This can be used in various ways, often through price reduction or specific sales activities. Various channels are used, including through existing customers, online stores/outlets and external actors/events. The identified strategies for the management of obsolete inventory, as presented in the theory section, are compared and discussed with the methods used by the case companies. Strategies have been separated into two groups, reactive and proactive. Some strategies have elements that can be classified as both reactive and proactive. Elements of these strategies have therefore been analysed in both the reactive and proactive sections, where each element of the strategy was deemed most relevant. For example, the ABC-analysis and certain cost awareness strategies may start off as reactive strategies that then turn into proactive strategies. 5.1 Reactive strategies Methods for identifying and classifying are all used by the different case companies but differ in which methods are used. Both Forankra and TMT analyse their obsolete inventory through a business intelligence system. The system then classifies their inventory and produces lists of the classifications for respective products in their assortment. Forankra analyses these lists every six months and decides on what measures to take. TMT does a product group analysis regularly and a more in-depth assortment group analysis annually. These methods can be linked to the last three steps of the lifecycle of internal processes: identify/classify, 45 analyse/value and dispose/recycle.59 The companies identify their obsolete inventory and reevaluate it so that it can be disposed of through different sale supportive measures. These measures align with the lifecycle theory on the analyse/value and dispose/recycle phases, but additional corrective measures are identified in the identify/classify phase. Focusing on the underlying reasons for the goods becoming obsolete could enable Forankra and TMT to make more informed decisions regarding the prevention of obsolete inventory. Abkati and Egil Verne both use an ABC-analysis based on volume value for their classification of goods. The implementation of the analysis has shown to be a helpful tool in the management of obsolete inventory. Reactively, it has been used to classify obsolete inventory and thereafter identify areas where safety stock and order quantities can be decreased. ABC-analysis has however been criticized in the literature for its classification with a singular criterion.60 To mitigate this critique the ABC-analysis can be complemented with the XYZ-analysis to create a combined analysis.61 Neither of the companies has tried implementing a combined ABC-XYZ analysis. The companies instead used other complementary measures to the ABC-analysis, which can explain the lower interest in the XYZ-analysis. Product lifecycle62 and Kraljic’s portfolio matrix63 act as the complement to the ABC-analysis and are used more proactively to highlight focus areas. Practical implications also limit the extent that these kinds of analyses can be utilized. Technical limitations in ERP-systems makes it difficult to test or create customized models. Minimum order quantities can be higher than the economic order quantity and lead to higher inventory levels than optimal. This is further emphasized by needing acceptable fill rates to minimize transportation costs. Furthermore, geopolitical disturbances have led to longer lead times, a higher risk factor to account for and limitations on which modes of transport that can be utilized. All aforementioned factors amplify the gap between optimal and practical inventory levels. By disposing of obsolete inventory, whether through sales or scrapping, the companies directly reduce its future inventory cost for the specific item. These costs include rent for 59 Crandall and Crandall, “Managing Excess Inventories.” 60 Otay, Senturk, and Çebi, “An Integrated Fuzzy Approach for Classifying Slow-Moving Items.” 61 Pandya and Thakkar, “A Review on Inventory Management Control Techniques: ABC-XYZ Analysis.” 62 Rink, Roden, and Fox, “Financial Management and Planning with the Product Life Cycle Concept.” 63 Webb, “What Is The Kraljic Matrix?” 46 warehouse space, handling, insurance and capital cost. Verne explicitly states that they prefer to sell at a loss rather than scrapping, so do Abkati and Forankra, to avoid the associated scrapping costs. This aligns with TCO64 and carrying cost65 as no further costs of warehousing or scrapping can occur. If the sale includes sales supportive measures, the decision on whether to scrap or to implement sales support, should be weighed against the cost of these measures, and with the sunk cost phenomena66 in mind. Verne also highlights the importance of reducing occupied inventory capacity as an important issue. A sale, even with a loss, can be economically justified if the avoided inventory costs exceed the sales revenue. The companies within the group manage obsolete inventory in a series of reactive measures, where sales- supportive measures are the most common way to dispose of goods when declared obsolete, but also to prevent them from becoming obsolete. The life cycle of internal processes suggests that finding new markets and alternative use for products can help companies retain their margins. This could be a potential opportunity to investigate within the companies with consideration of the relation between TCO/carrying cost and the resources required. The four interviewed companies have a few different processes, but they all have in common that the main focus is selling the items and to the most possible extent, avoid scrapping. TMT focus on selling these goods directly to its customer base, while Verne tries to reach out with discounted offers to relevant customer segments or rebrand to other markets. Since there are no guidelines within the group, every company has separately structured their processes regarding managing obsolete inventory. This has led to companies doing what suits their situation best. In this case, it may be based on the extent of technical resources, knowledge in the area, or ability to adapt to changing market conditions. Some of the companies have implemented advanced warehouse management systems or ERP systems, whilst others have a more manual process due to limited resources or a lack of standardised processes. As a result, there is no unified approach to handling obsolete inventory, and processes vary widely within and between companies. With the help of inventory management policies, the companies could conduct regular processes that could act as a guiding tool. There are no best practices for these policies, and the different companies have different needs and therefore use different policies. By analysing the specific company’s inventory and products, with for example a combined use of ABC analysis, Kraljic matrix and 64 Visani et al., “Supplier’s Total Cost of Ownership Evaluation.” 65 Mattsson, Stig-Arne. Handbok i materialstyrning, Imlog 2009. 66 Blumer and Hal Richard, “The Psychology of Sunk Cost.” 47 product lifecycle, the companies could develop guidelines in inventory management policies which could simplify decision-making. This could lead to a more effective way of managing obsolete inventory and prevent investments that lead to a higher total cost of ownership and undermining the margins. The lack of uniformity today can lead to inefficiencies, missed opportunities and potential losses across the group as a whole. Without a policy, framework or best practice, the management of obsolete inventory may be inconsistent, leading to organisations struggling to optimise their potential in handling obsolete inventory. 5.2 Proactive strategies As previously mentioned, the classification tools used by the different companies are the ABC analysis, Kraljic’s portfolio matrix and through business intelligence systems. Abkati is the only company that explicitly uses Kraljic’s portfolio matrix. They use the method as a complement to their ABC analysis to guide their purchasing strategy. Thus, helping them identify which suppliers and products to focus on. This exemplifies how Kraljic can be used proactively in the purchasing process, which is directly related to reducing the risk of goods becoming obsolete. Although Forankra, TMT and Verne do not specifically mention Kraljic in their processes, they address issues where Kraljic’s Matrix could be useful. All three companies deal with supply risk in some form, especially long lead times and minimum order quantities from Asia. The matrix could provide a structure to systematically evaluate the risk by item or supplier that could inform the companies decisions about safety stock or optimal order quantity. Managing obsolete inventory after its occurrence is about minimizing the economic impact. Although Kraljic does not directly control how obsolete inventory is handled, the initial classification as a proactive strategy can provide indication on the initial importance of the product. This can be used as a guideline in how much resources that are reasonable to spend on reactive measures such as sales supportive measures when dispose of the product. For example, non-critical items should be managed in such a manner that results in the lowest costs, so that the total cost of ownership does not exceed revenue streams. While forecasting is a theoretically attractive concept, its practical implementation presents challenges. The companies within the case study had a generally positive attitude towards forecasting but noted that the extent to which it can be used and the precision of it, posed a 48 challenge. Forankra mentioned that they rarely receive forecasts from customers except for some original equipment manufacturers. Even if they receive some forecasts, they are not consistently accurate. However, Abkati, Egil Verne and TMT use some form of forecasting, namely by analysing the product lifecycle. Since the model is quite simple in its nature, its main drawback is that precise results are hard to achieve. Something which may not be relevant to the companies, since precise results are already hard to achieve in practice. This practical challenge therefore limits other forecasting models potential, but not that of the product lifecycle. Abkati follows a more formal model when working with the lifecycle, like the one found in theory, to assist purchasing decisions. Trends or phases of the product are followed to avoid buying too much, too soon or too late. Egil Verne and TMT doesn’t work with it formally but considers certain aspects that resemble the lifecycle model. Egil Verne considers aspects such as the lifecycle value, customer needs and technological advancements in their purchasing evaluation. Customer needs and technological advancements are forms of trends that can both lengthen or shorten the product lifecycle, making them important considerations. TMT focuses on trends in demand for their analysis. If a product has diminishing demand, like in the decline phase of the product lifecycle, it is classified as a “kill item”. The product is then phased out of stock to avoid having large inventories of the product when demand reaches zero. These measures have had a positive impact on the companies’ inventory levels for certain products and therefore lowering their obsolescence risk. Although there are certain challenges associated with forecasting demand, efforts can be made to evaluate how precise these models can be if applied. Models such as Croston’s67 and hurdle negative binomial68 are specifically designed to forecast intermittent demand, which can be used to minimize obsolete inventory. Parts of the companies obsolete, and excess inventory were products that doesn’t necessarily sell well but is needed for customer retention. By applying the models to historical data, the companies could establish how accurate these forecasting models are on these products. The inventory levels could then be lowered based on the model’s output, which is adjusted with the risk factor of not meeting service levels. The sunk cost phenomena could also be applied to warehouse management, as most decisions on how to dispose of obsolete inventory are made intuitively. Sunk cost was not explicitly mentioned in any of the interviews, but many decisions can be connected to the psychology of 67 Croston, “Forecasting and Stock Control for Intermittent Demands.” 68 Hahn and Leucht, “Managing Inventory Systems of Slow-Moving Items.” 49 sunk cost. The companies’ decisions to sell obsolete inventory at discounted prices, even though it might lead to a loss compared to the original purchase price, can be interpreted as a rational decision where they try to maximize the value or rather minimize the loss of an already incurred sunk cost. Rather than having the item tie up capital and cost more in carrying cost. By selling at a discounted price, the total loss is reduced, and future inventory and scrapping costs are avoided. This behaviour indicates an awareness that it is better to realize a smaller loss rather than to keep an item that incurs further cost. Sunk cost should be thought of in all decisions on obsolete inventory and even in the pre obsolete phase to take decisions based on more than just intuition or experience. The perception may otherwise be that the company generates additional revenue because of conducted sales supportive measures rather than them further undermining the company’s margins. In the case of companies retaining products for a potential future sale rather than disposing the product at risk for obsolescence, would lead to an increase in total cost of ownership. The TCO includes not only the purchasing price but also for example the costs for supplier management, warehousing cost, handling cost and scrapping costs. Holding obsolete inventory increases the TCO as it incurs cost of warehousing, handling etc. The obsolete inventory uses warehousing space, tie up financial resources and increases the operational costs of inventory management, which will lead to undermining the company’s profitability and efficiency. In the interviews the total cost of ownership was not mentioned and discussed. However, their efforts to reduce obsolete inventory by freeing up capital, reducing the need for warehouse space, avoid scrapping cost and improve inventory turnover rates, are all measures that in practice contributes to reducing the company’s total cost of ownership within warehouse management. For example, the assortment reduction at TMT is likely to reduce TCO by simplifying management and reduce the risk of obsolescence. All the companies in this study oversee their own warehousing and warehouse management. In the interview with Forankra AB the discussion about conducting a model on knowing the carrying cost of obsolete inventory was brought up as a potential opportunity for better decision-making in the future. This would mean that the carrying cost must be ascertained for the specific product. Or rather convert fixed costs into variable costs to better distribute costs over the stored products. This was expressed in several of the companies as somewhat problematic due to the products varying character in size and value. One way could be 50 through a third-party logistics warehousing solution. The advantages of a 3PL69 can be cost reductions, increased service quality, access to expertise and technology, and the ability to convert fixed costs into variable costs. Several of the companies use, or are considering using, external parties to dispose of obsolete inventory. By using a third party, carrying cost could be easier to keep track of. The carrying cost refers to all costs associated with holding inventory, costs that would be eliminated if the inventory were liquidated. There could therefore be a reason to investigate the potential benefits of a third-party warehouse. Not necessarily because it is the best solution at the specific time but because it could lead to lower inventory levels. This could be achieved since cost awareness is heightened when implementing a third-party logistics solution. When fixed costs are converted to variable costs, costs are easier to visualize. This could contribute to more informed decisions about obsolete inventory and reduce excess inventory, as knowledge about cost could lead to rapid decision-making. The potential benefit of a third-party logistics warehouse is also that the company only pay for the warehouse space used. For example, TMT has reduced its assortment, and Verne has expanded its warehouse, in the case of TMT a reduced need for warehouse could have more positive effects if a third-party warehouse was used and for Verne the need for more warehousing space could be easily accessed through a third party. The use of a third-party warehouse could also lead to better replenishing levels and lower excess stock as the information about the costs are better plotted. 69 Selviaridis and Spring, “Third Party Logistics.” 51 6. Conclusion While all four companies are aware of the cost and impact of obsolete inventory, their strategies for managing it vary, due to differences in resources, systems, and organizational priorities. A combination of reactive and proactive measures is used. Reactive strategies, such as classification through ABC analysis, BI systems, and product analysis, are used but not consistently optimized due to ERP limitations and varying analytical depth. While some companies complement ABC analysis with tools like the product lifecycle or Kraljic matrix, others could benefit from integrating these models more systematically. Proactive strategies, such as Kraljic’s model and forecasting based on lifecycle and demand trends, demonstrate good potential but are to some extent limited by practical forecasting challenges and system constraints. Cost awareness, including concepts like carrying cost, Total Cost of Ownership and sunk cost, implicitly drives many decisions, although they are not widely formalized or measured. The potential role of a third-party logistics solution could improve visibility of costs by converting fixed costs to variable ones. Even though products in respective company vary in size and value, a general carrying cost can visualize costs of warehousing obsolete inventory. Thus, enabling more agile decision-making on which measures to take regarding obsolete inventory. Long lead times and associated minimum order quantities have also shown to be a reason for higher inventory levels and obsolescence risk. An analysis of price, lead times and carrying cost for goods in transit could determine if the procurement of goods with shorter lead times would be more profitable. Unified key performance indicators and definitions of obsolete inventory could enable benchmarking between companies and facilitate identification of successful strategies for managing obsolete inventory. Furthermore, defining which article movements the classification of goods should be based on, for example, in- and outbound deliveries to customers. Implementation of strategies for managing obsolete inventory could also be distinguished between short-term opportunities and long-term strategies to optimize resource allocation. By developing inventory management policies best suited for each company, using proactive and reactive models for classifying goods, forecasting demand and raising cost awareness. 52 The companies could enhance decision-making and better manage and minimize the occurrence of obsolete and excess inventory. Establishing such frameworks could strengthen overall performance, lower the total cost of ownership, and mitigate the long-term financial impact of obsolete inventory. The final recommendation regarding a framework is to integrate an ABC-analysis with the Kraljic matrix, not just as a corrective measure, but as a proactive tool for procurement and inventory planning. This combination allows companies to classify goods not only by their value or turnover but also by their strategic importance and supply risk. When used systematically, this dual approach enables better prioritisation, more informed forecasting and early identification of items at risk of obsolescence. Furthermore, by fostering cost awareness, including concepts such as carrying costs, total cost of ownership, and sunk costs, the company can improve its decision-making processes. These costs, while often implicit, play a crucial role in inventory management and should be formalised and visualised. Doing so enables more agile responses, for example, by helping determine whether maintaining safety stock or placing smaller, more frequent orders is more cost-efficient. Finally, proactive forecasting based on lifecycle data and demand trends, along with strategic procurement choices, for example, sourcing items with shorter lead times, can reduce dependency on reactive strategies by working continuously to prevent obsolescence. In conclusion, the framework implies that by including proactive implementation of ABC- analysis combined with the Kraljic matrix, continuous forecasting based on the product lifecycle and improved cost awareness across decision-making both proactively and reactively, companies can shift from reacting on obsolete inventory to preventing it. Ultimately, this framework will lead to reduced waste, lowering total cost, strengthened overall supply chain performance, and leading to a better turnover. While the proposed framework offers a structured approach to managing obsolete inventory, its generalizability is limited. The study is based on a small sample of companies operating within resembling markets and applying similar strategies. As such, organisational size, industry-specific conditions and system capabilities may vary significantly in other contexts, 53 which could affect the feasibility and effectiveness of certain measures. Therefore, the framework should be adopted with care regarding each company’s unique resources, priorities and operational environment. Further research could therefore focus on further analysis of the underlying causes for obsolete inventory. A larger sample size, across different industries and company sizes could provide more generalisable results for different sectors. Another area to further research in could be from a sustainability and circular economy perspective. Researching how companies could find alternative uses and repurpose obsolete inventory could help industries to align with climate and sustainability goals. Lastly, researching the behavioural aspects, related to risk, forecasting and procurement could provide insights into why certain decisions in inventory management are made. Individual bias and organizational behaviour could explain underlying causes for the occurrence obsolete inventory. These research areas could contribute to a more complete understanding of the occurrence and challenges associated with inventory management and obsolete inventory. 54 Interview questions 1. Is obsolete inventory perceived as a problem in your company, what is the general attitude towards it? 2. What reactive methods are used to detect and minimize obsolete inventory? 3. What proactive methods are used to detect and minimize obsolete inventory? 4. What is the frequency of inventory analysis of obsolete inventory and by what means? 5. Do you consider your current write-off policy to be optimally tailored to your company and industry? 6. Is the policy integrated into your purchasing, planning, and production decisions? 7. What is done when getting rid of obsolete inventory, are there clear routines in place for scrapping, recycling, or other forms of disposal when declared obsolete? 8. When items are obsolete but remain in inventory, how are they managed from a sales and storage perspective? 9. How often do you get rid of obsolete inventory? 10. Do you have an idea of the carrying cost to stock your goods? 11. Approximately how much warehouse space is being used to house inventory that has been written of or declared obsolete? 12. If you think about your business today, is there anything you think could be done differently to better prevent the occurrence of obsolete inventory? 13. Are there any methods you have tried to implement, but that didn’t work out? 55 Figures Figure 1 ” The figure compares demand and current inventory against inventory age. Excess inventory is goods that face a greater risk of obsolescence. Obsolete inventory is goods that have not incurred sales over a period of two years.” ................................................................. 6 Figure 2 "Typical distribution of share of goods and value in ABC-analysis" ........................ 11 Figure 3 "Classification based on demand and prediction" ..................................................... 12 Figure 4 "Combination of ABC analysis and XYZ analysis" .................................................. 12 Figure 5 "Kraljic four classifications on parts" ........................................................................ 13 Figure 6 " Kraljic's categories and strategic recommendations" .............................................. 14 Figure 7 "The figure shows the different phases and how different actors in the process interact with each other" ........................................................................................................... 17 Figure 8 "A generalized product lifecycle curve"…………………………………………….20 Figure 9 "An organization chart for Axel Johnson. Selected and interviewed companies are highlighted in green" ................................................................................................................ 28 Figure 10 "Geographical location of case companies" ............................................................ 29 Figure 11 "Case companies and their total inventory value plus percent of inventory that is classified as obsolete" .............................................................................................................. 33 Tables Table 1 "Challenges and suitable strategies in each phase are presented" ............................... 19 Table 2 "Characteristics, challenges and suitable strategies for each phase are presented" .... 21 Table 3 "Summary of results" ………………………………………………………………..44 56 7. References Alvesson, Mats, and Kaj Sköldberg. Tolkning Och Reflektion: Vetenskapsfilosofi Och Kvalitativ Metod. 4:e uppl. Lund: Studentliteratur, 2022. 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