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What is Obsolescence?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 12 September 2016
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Obsolescence is a word which is used to describe a product, service, or concept which is functional, but no longer useful because of changes which have occurred in the market. Technology may have outstripped the product, for example, or changes in training, social norms, and accepted practices may have rendered a service useless. Obsolescence is a continual issue with everything from medical training to cars.

Technological obsolescence occurs when technology moves quickly enough that functional objects become useless because better technology becomes available. Sometimes this happens as a natural byproduct of the technology industry, which is constantly developing innovations in an attempt to improve. In other cases, it may be deliberate. Planned obsolescence is a business strategy used by many companies to promote high sales volume. Cell phones, for example, come out in new models each year, with the goal of forcing people to abandon old models so that they can obtain new ones.

In costing and accounting, obsolescence is an important issue to consider. When valuing objects, obsolescence is one thing to consider. Take, for example, a piece of diagnostic equipment used in the medical field. When new, the equipment might be extremely expensive. Under normal accounting practices, it would be viewed as depreciating each year as a result of use. However, obsolescence can accelerate the depreciation, making the equipment less valuable.

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This can be important when it comes to things like taking out insurance policies, filing insurance claims, managing inventory, and so forth. In the equipment example above, obsolescence might make the value of that particular piece of equipment very low, when the cost for replacing it with a piece of equipment with a similar function may be quite high. Ultrasound machines are an excellent example; the technology behind ultrasound imaging is always improving which means that when insuring medical equipment, people need to think not about the cost of replacing a specific unit, but about the cost of buying a new ultrasound machine in general.

Companies must also watch out for obsolescence when they manage inventory for sale. For example, an electronics store does not want to order a glut of computers with an old operating system when a new operating system is about to come out, because consumers will not want the older computers. Likewise, stores need to manage other items which rapidly become obsolescent to make sure that they do not end up with inventory which cannot be sold.

Obsolescence is also a problem for people and training. In fields which advance rapidly, people with outdated training may not be employable, or may need retraining. For example, a librarian accustomed to card catalogs cannot find work in libraries which use computerized cataloging systems. Likewise, a programmer who knows programming languages which were in vogue 10 years ago would be at sea in a modern technology company. This is an especially large problem for adults who are trying to return to the workforce after taking time off.

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