Slow-Moving and Obsolete Stock (SLOB)

What Is Slow-Moving and Obsolete Stock (SLOB)?

The acronym groups two conditions that are worth keeping apart in practice, because they call for different responses. Slow-moving stock is still selling and the question is whether the holding is proportionate to the rate at which it moves. Obsolete stock commands no market at any realistic price, having been superseded or expired, or because the product, customer or process it belonged to has gone. One is a working capital problem and the other is a valuation problem.

What the grouping is for is triggering examination. A SLOB report identifies the population whose carrying value needs to be tested, and that testing then proceeds item by item against what the goods will actually realise. Reporting the category as a single provision percentage applied to a total is where the discipline usually breaks down, because it produces a number without anybody having looked at what the stock is. Lenders pay particular attention to this line, since stock in either condition is security that will not realise what the statement claims for it.

How Slow-Moving and Obsolete Stock (SLOB) Is Measured and Valued

Measurement runs in two stages: identify the population by movement, then value it by realisation.

• Take an item held at 250 per unit with 800 units on hand. Annual consumption has been 100 units, so the holding represents eight years of cover against a policy threshold of two.
• That identifies it. It does not value it, because coverage says nothing about what the goods will fetch.
• Valuation follows item by item. If the part is still fitted to equipment in service, the whole 800 may be worth its cost. If the equipment has been withdrawn, the realistic outlet is scrap at perhaps 20 per unit, and the write-down is 230 across 800 units.
• The measure identifies where to look; the realisation evidence decides the figure. Applying a single percentage to the whole category produces a number nobody has tested against either question.

How Slow-Moving and Obsolete Stock (SLOB) Works in Practice

1. Consumption or sales data is run against the holding for each item, producing a coverage figure that expresses the quantity held as a period of expected usage.

1. Items whose coverage exceeds a defined threshold, and items with no movement within a defined window, are flagged into the category.

1. The flagged population is examined physically rather than analytically, because the data identifies candidates and the floor establishes what they actually are. Damage, supersession and expiry are visible only there.

1. Each item is then assessed for realisable value against what its market will pay, and the provision is computed from that assessment rather than from the band it fell into.

1. The result feeds two decisions at once: the accounting charge for the period, and an operational question about why the stock was bought in that quantity, which is the part most businesses skip.

Slow-Moving and Obsolete Stock (SLOB): A Worked Example

A Manesar component supplier reviews its store against issue history rather than against purchase date.

The distinction between the middle two rows is the one that carries money. Superseded parts that still fit a platform in the field have a real aftermarket and are provided against lightly. Parts for a platform nobody manufactures or services have no buyer at any price and are provided against in full. Issue history is the better test because purchase date says only when something arrived, while the date it was last consumed says whether anything still uses it. Reviewing on purchase date alone would have classified the engineering samples as merely slow, since a few were bought recently.

Common Mistakes With Slow-Moving and Obsolete Stock (SLOB)

Grouping the categories is useful for reporting and unhelpful for deciding.

• Applying one provision percentage to the whole grouping, which yields a figure nobody has tested against what the goods in that band actually are.
• Treating slow-moving items as obsolete, when goods that are still selling have a market and a value the ageing does not describe.
• Never running the analysis at all, so the question of whether items still have a market first arises at an audit and arrives as a finding.
• Providing against the balance while continuing to purchase the same lines, which grows the category faster than the provision addresses it.
• Carrying the report but not acting on it, so the same items appear in the same band year after year and the provision becomes a permanent feature rather than a decision.

Related Stock Audit Terms

Reducing the value while the goods remain is the first response to it, so stock write-down is the entry to read next. Every other term in this cluster is listed in the stock audit glossary, grouped by the part of the work it belongs to.