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 your sluggish products. Here’s why slow-moving stock is a problem and how you can identify it to establish a strong growth strategy.
Why is slow-moving inventory an issue?
First and foremost, sluggish inventory is challenging because it occupies physical warehouse space and ties up capital. This can hinder your cash flow and impact your business negatively. A steady flow of revenue is essential for any business to run well. However, if too many resources are being wasted on slow-moving stock, 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’re dealing with, it’s important to find solutions to reduce sluggish stock and increase cash flow and return on investment. There are different ways to identify slow-moving inventory. Here are some important ones to look out for:
1. 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 products to watch out for are those with low turnover rates. These signify that the stock tends to sit in the warehouse for a long period of time before it’s purchased.
Keeping an eye on these metrics can help your ecommerce business identify which product move slower than others and consequently deal with them accordingly to prevent the loss of profit and operational inefficiency.
2. Check inventory daily
If you’re carrying out you fulfilment in-house, checking your inventory weekly is a must. 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 at a slower rate than the rest of your inventory, investigate why that could be. The key to ensure your data is reliable is not letting your employees know which items you’re counting. This will reveal whether it’s a problem with inefficient processes or employee negligence.
Of course, if you decide to outsource your fulfilment, this stock-checking process will become a lot less time consuming. A reputable fulfilment partner, like Dimensions, will give you access to advanced warehousing management systems that automatically gather data on your inventory. With such systems, detailed reports and trends on your stock movements are only a click away.
3. Holding costs incurred
Holding costs are the costs incurred for storing and maintaining inventory. These costs include rent, bills, storage, insurance premiums, licenses and certificates (if you sell alcohol, food or medicine), 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 an ecommerce business can be worrisome. Considering these costs when developing your business model is essential to efficiently and cost-effectively manage your inventory.
4. 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 of the product, find out its gross profit. The gross profit is the product price minus the price required to make, hold and sell it.
5. 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. This is why proper management is essential.
Let Dimensions help you with your inventory
As a business, you need to focus on efficiently managing your inventory. This includes identifying slow-moving and fast-moving products. Doing this in-house may work temporarily if you’re a start-up, but once your business starts to grow, tracking your inventory manually is time consuming, costly and all-round inefficient.
Using a warehouse management software (WMS), such as Dimensions’ preferred 3PL Central, will help you make your business run more efficiently and accurately.
By proactively using 3PL Central, you can prevent risks form hindering your ability to run smooth operations and please your customers. Dimensions’ WMS helps businesses track their inventory movements in real time and record metrics that help them decide how much of each product to stock in order to prevent loss and waste. If you’re ready to start using a WMS, partner with a third-party logistic partner who cares about your success.
Dimensions helps its clients find the right solution to meet their warehouse organisations and inventory management needs. We provide services such as ecommerce fulfilment, kitting, alcohol fulfilment and subscription box fulfilment. There are endless benefits to working with a 3PL company that uses the best quality warehousing technology to manage your stock and fulfilment. To get your tailored fulfilment solutions, contact us via your preferred way.