COMPANIES WRITE OFF MILLIONS OFDOLLARS IN OB- SO INVENTORIES
During the economic slowdown of 2000-2001 (also referred to by some as a recession). many high-technology companies had to write off significant amounts of obsolete inventories These inventories were the result of the inability of these firms' managers to anticipate the economic downturn and its associated decrease in sales. These
excessive inventories occurred at all levels of the supply chain, including semiconductor manufacturers, electronic
contract manufacturers, and PC makers. According to Steve Ward, general manager for IBM's Global sector .
inventory instead of short-term notes. If the firm has an alternative project to invest in, then the capital cost is the opportunity cost of the anticipated return of that project. If the firm has to borrow funds to maintain an inventory, then the capital cost is the interest paid on these funds. Obsolescence costs recognize that products tend to depreciate in value over time. This is especially true in high-technology industries where newer and better (and often cheaper) products are constantly being introduced. In this ca egory. we also include spoilage costs associated with: products that have a short shelf life. like pen'stable food products and some types of prescription drugs. Shrinkage costs track pilferage and breakage.