Slow-moving inventory is a problem most businesses deal with from time to time. Inventory management is tricky; some inventories might sit on the racks longer than expected. Some companies consider a product sitting on the shelf for 90 days slow-moving.
The challenge with slow-moving inventory is that it takes up space and impacts business by affecting capital. Inventory movements depend on factors such as wrong sales forecasts, market slowdown, or wrong order volume.
But how to identify it? And how it affects the business is all described in this article.
Slow-Moving Inventory Meaning
Slow-moving inventory is inventory stocks that are taking longer time to sell. Different industries define slow-moving stocks differently. Some might have inventory for 90 180, or 210 days as slow-moving inventory. It depends on the product, as some products might sell within 90 days.
Good inventory management helps businesses find better ways to manage inventory, identify products in slow-moving categories, and design suitable solutions. To identify slow-moving products, warehouse managers need accurate and detailed inventory data about products.
Key Takeaways
- Inventory management helps businesses to identify products in slow-moving inventory and their causes.
- Factors for slow-moving inventory include a variety of reasons like changes in market demand, poor marketing, etc.
Ways to Prevent Slow-Moving Inventory
Here are a few steps businesses can take to reduce slow-moving inventory:
1. Forecast Demand
Demand forecasting can help companies stock only those products with higher supply needs. For example, during winter, demand for coats and jackets is high.
2. Early Warning Systems
If a business identifies slow-moving products, alerts must be set. By following specific safety measures, companies can locate slow-moving inventory.
3. Supply Chain Management
Good communication with suppliers and customers smoothly manages the supply chain and production process. It helps to predict what customers want and how to sell the slow inventory quickly.
4. Monitor the Competition
Competitive market conditions also play an important role in a slower supply chain. Actively monitoring all market competition is one way to calculate real-time data and plan marketing accordingly.
5. Inventory Management
Technology can play a significant role in inventory management. It helps businesses collect data about when the product comes in and the sale date.
With TranZact, you can also check which inventory products are on the shelf for long periods and for what reasons.
Why Is Slow-Moving Inventory Problematic?
Slow-moving inventories are products stored for long periods due to no customer demands. This type of inventory product is problematic as it takes too much physical space and has high storage values.
They use resources and can negatively affect companies' cash flow as they do not contribute to the profits. They become a liability.
How to Identify Slow-Moving Inventory?
Here is how you can identify slow-moving inventory:
1. Overstock
Similar products, if overstocked, can result in slow-moving stocks. Do business forecasts and then order products to avoid overstocking.
2. Inventory Turnover
It is a financial measure to find the speed of inventories a business sells. It divides products into various categories according to their type and prices.
3. Shipment Frequency
It is a measure to check how long a business takes to ship orders when a restocking order is placed. If the reorder order frequency is slower, the order sells slower.
4. Holding Costs
If the business spends more and more on storage costs than the profits or selling average, it is called holding cost. It means business is overstocking or holding more products than they can sell.
5. Gross Profits
If a business is not making gross profits due to fewer sales of specific products, these products will sit on the shelf longer than expected. If the average gross profit reduces, slower inventory products are selling.
What to Do With Slow-Moving Inventory?
Here are some steps businesses can take to increase inventory management speed:
1. Cut Prices
Businesses can cut prices of products temporarily or permanently depending on the sale. A product at a discounted rate is much more likely to sell than the original price.
2. Improve Marketing
Changing your product looks and making it more customer-appropriate can help speed up sales. Improving website navigation, and photo quality or moving them to more attractive places in stores can help your product gain more popularity.
3. Offer Promotions
Along with discounts, some promotions help clear the inventory quickly. Buy one get one free or buy two get one free are some promotions businesses can offer to clear their stocks.
4. Use Sales Channels
Products sometimes do not reach the proper market bases due to wrong sales techniques. Partnering with the right sales channels can help businesses to get the required customer base.
5. Donations
If the business needs to clear inventory even after many tricks, it can donate products as goodwill instead of letting products expire on shelves. Products in warehouses use resources and do not generate revenue.
It's better to improve the company's image by donating products and using them as ad campaigns.
Examples of Slow-Moving Inventory
Imagine Company ABC is a garment manufacturingcompany.
Managers are worried as a batch of warm coats has been in stock for over six months and needs to be cleared soon. Instead of offering them at discount rates, by waiting a few months, coats will soon be in demand as the winters come.
Using good SEO tools and website navigation software, ABC company can increase its reach to customers to sell the coats before winter. An SEO tool helps businesses target the right audience, like anyone visiting mountains during summer who might need coats. Also, someone visiting another country with much cold weather will require coats.
Manage Slow-Moving Inventory
Managing slow-moving inventory products sometimes requires good inventory management. It becomes a cost-benefit analysis and queries like how much inventory is at hand, how many resources it takes, the storage cost, and many others.
Inventory products can expire or get damaged due to spoilage if stored for longer. Overstocking products can also affect cash flow and crowded warehouses slow supply chain procedures.
Managing inventory is important; businesses can face moving stock issues without the right management.
Solve Problems With Inventory Management Software
Many businesses have issues like slow-moving inventories or overstocking and face multiple problems generating profits. Inventory management can save storage costs, warehouse management, or product damage costs and create enough storage for these products that are in demand and bring profits.
Inventory management software allows businesses to collect all the data and real-time situations about inventory and how to solve them. It helps companies with slow-moving inventory audits that contain all the inventory information.
Slow Moving Inventory Management With TranZact
TranZact helps businesses to track inventory and manage all issues with minimal effort. With the correct information about product demands and expiry dates, Tranzact's inventory management tool can help schedule product reorders accordingly.
This inventory management software can help businesses reduce product wastage, overstocking inventory, and smooth distribution.
FAQs on Slow-Moving Inventory
1. What is an accounting entry for provision for slow-moving Inventory?
Accounting entry for provision for slow-moving inventory means debiting the stock conditions and crediting the current assets.
2. What is the definition of a slow-moving Inventory?
Slow-moving Inventory is those products with low turnovers that sit on warehouse shelves for long periods.
3. What is the slow-moving inventory formula?
The slow-moving inventory formula finds inventory turnover by dividing the value of stocks by their sales and multiplying it by the period it stays on the shelf.
4. What is a non-moving Inventory?
The inventory products with very little or no demand are non-moving inventory products.
5. What are some strategies to move slow Inventory?
Strategies to move Inventory quickly include targeting audience demands, forecasting market needs, and using technology to offer promotions and discounts.
6. What is a fast-moving Inventory?
Inventories products that sell quickly and are in high demand among consumers are fast-moving inventories.
7. What do you mean by SKU?
SKU stands for a stock-keeping unit. It tells retailers about stock levels in inventory.
