In a world where inventory management can make or break a business, understanding the nuances of grading inventory is essential for maintaining profitability and efficiency. This Inventory Grading Policy serves as a guide for organizations looking to identify and reserve slow-moving and obsolete inventory effectively. By implementing structured grading rules, businesses can proactively manage their stock levels, minimize waste and optimize their operational strategies. This policy outlines specific classifications like active, slow-moving and obsolete, each with distinct criteria that help decision-makers take timely actions to prevent losses and enhance resource allocation.

Delving deeper, this tool emphasizes the importance of regular inventory assessments, encouraging quarterly evaluations to ensure that all items are accurately classified. It highlights the need for documentation and accountability, placing responsibility on unit controllers to maintain rigorous standards. With clear instructions on how to handle various inventory scenarios, including high planned-stock levels and seasonal usage variations, this policy equips organizations with the tools to navigate complex inventory landscapes.  

Sample procedures include:

• A grading of the operating unit's total inventory should be completed at least once quarterly.
• Documentation of the quarterly inventory grading analysis should be retained as support for the inventory reserves recorded in the general ledger.
• No item should be assigned to a more active classification than it had the previous year unless the movement criteria of the more active classification is met and it is expected to remain in a more active classification.
• All reclassifications between grading categories should be documented and supported.