The accountant is frequently involved in tracking and costing obsolete inventory. A common result of such obsolescence reviews is that management elects to send the inventory back to suppliers, usually paying a restocking fee to do so. However, some types of inventory are categorized by suppliers as Non-Cancelable and Non-Returnable (NCNR), usually because the inventory is so customized that they cannot expect to resell it elsewhere.
When NCNR inventory is found on the obsolete inventory list, the accountant’s next step is to process an inventory write-off transaction. However, it is also possible to recommend a variety of up-front procedures to ensure that less NCNR inventory is ordered or left unused by the company, thereby reducing the amount of future write-offs. Here are some options to consider:
- Designate a field in the inventory item master file as the NCNR flag, and use it to designate which inventory items are categorized as NCNR by suppliers.
- Using the NCNR flag, modify the corporate material requirements planning system to forward all automatically-generated purchase orders for these items to the materials planning staff, who verifies that they are really needed.
- Use the NCNR flag to create reports showing any NCNR inventory that will no longer be usable when an engineering change order is activated, when a bill of materials is modified for some other reason, or when a customer cancels a sales order.
- Use the NCNR flag to report on any scheduled production requiring NCNR items that is based on a forecast, rather than actual demand. When management realizes the extra risk associated with this type of inventory, they tend to reduce the size of their forecasts.
- Finally, the NCNR status of inventory will be altered by suppliers from time to time, so be sure to update the NCNR flags in the item master file at least once a year.
These steps are an excellent way to reduce the amount of inventory write-offs associated with NCNR inventory.