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Slow-moving inventory is defined as stock that has had little customer demand over a certain period of time. But how do you identify slow-moving inventory? What qualifies as little customer demand? All of these questions are important to ask yourself when reviewing your inventory strategy. If your focus is on growing your business and staying ahead of your competitors, it’s important to dedicate time to improving your fast-moving inventory and managing the slow movers. Here’s why slow movers are a problem and how you can identify them to establish a strong growth strategy.
What’s the Problem with Slow-Moving Inventory?
Slow-moving inventory is challenging because it occupies physical warehouse space and ties up capital, which can hinder your cash flow and impact your business negatively. A steady flow of revenue is essential for any business to run well, but if too many resources are being wasted on slow-moving stocks, you won’t be running your business as efficiently as you could. Items that sit on shelves and lose their value to customers can lead to wasted and lost opportunities for profit.
The factors that cause slow-moving inventory include the following:
- Inaccurate sales forecasts
- Market slowdowns
- Aggressive promotions from competitors
- Needing to save on per unit costs by ordering more volume
Whatever factors you are dealing with, it’s important to find solutions to reduce slow-moving inventory to increase cash flow and return on investment. There are different ways to identify slow-moving inventory. Here are some important ones to consider.
Inventory Turnover
Inventory turnover is the number of times a product is sold and replaced in a specified time period. Evaluating this aspect helps businesses understand the rate that their products are sold. High inventory turnover rates are the best kind—they indicate that products are sold as quickly as they are manufactured and received. The kinds of products to watch out for are those with low turnover rates. This signifies that the product tends to sit in the warehouse for a long period of time before it is purchased. Metrics can help businesses identify which products move slower than others and deal with them accordingly to prevent the loss of profits and operational inefficiencies.
Check Inventory Daily
Checking your inventory weekly is a must for any retail business, but once you have this data, you can compare it to your point of sale (POS) data. To make this process more manageable, conduct spot-checks of four items at a time. Once you notice certain stocks are moving too slowly, investigate why that could be. This key to ensuring this data is reliable is not letting your employees know which items you are counting. This will reveal whether it is a problem with inefficient processes or employee negligence.
Holding Costs Incurred
Holding costs are the costs incurred for storing and maintaining inventory. These costs include rent, bills, storage, insurance premiums, maintenance charges, staffing, equipment, and more. At first, these costs seem to be minor, which is why this area is often overlooked. Unfortunately, the impact of these costs on a retail business in the long run can be worrisome. Considering these costs when developing your business model is essential to efficiently manage inventory. Products with high holding costs tend to be slow-moving stocks and fast-moving stocks tend to have lower holding costs.
Gross Profit
To identify slow-moving inventory, you must see how the costs affect the selling price, and how that contributes to customer demand. Once you have attributed all the costs to the product, find out its gross profit. The gross profit is the product price minus the cost required to make, hold, and sell it.
Check Trends and Forecast
Historical data, both short- and long-term, can help you discover patterns with your inventory. You can compare inventory turnover according to seasons, promotions, and overall trends against upswings and plateaus of customer demand. Information such as gross profit, inventory costs, and seasonality changes can help you find slow-moving items and make informed decisions about your inventory management. Mismanaged inventory causes a shocking loss in sales for many retailers, which is why proper management is essential.
Let APS Fulfillment, Inc. Help You with Inventory Management
As a retailer, you need to focus on efficiently managing your inventory. This includes identifying slow-moving and fast-moving products. It may work with a startup business, but if your business starts to grow, tracking your inventory manually is inefficient. Using an inventory management software (IMS) will make your business run more efficiently and accurately. By proactively implementing IMS, you can prevent risks from hindering your ability to run smooth operations and please your customers. IMS helps retailers track their inventory movement in real time and record metrics that help them decide how much of each product to acquire in order to prevent loss and waste. If you’re ready to see how IMS will transform your operations, partner with a third-party logistics partner who cares about your success.
APS Fulfillment, Inc. is prepared to help our clients find the right solutions to meet their warehouse organization and inventory management needs. We provide services such as real-time inventory management, e-commerce fulfillment, fulfillment solutions, and fulfillment markets. There are endless benefits to working with a third-party logistics company that uses the best quality software systems to manage your warehouse, so if you’re looking for the right company, look no further than APS Fulfillment, Inc. You can contact us by e-mail at [email protected] or by phone at (954) 582-7450.
