Read this article and discover the 5 most effective methods that will help you determine slow moving inventory! Get all important information here!
What exactly are slow movers? They are classified as inventory items that have had very little user demand over a specific period of time. You probably want to know what little user demand is and how long of a time period validates a slow-mover. These are probably the most popular questions, people are asking when they are managing inventory audits.
In a pretty competitive market where your company’s goal is to grow and expand your focus on hot ticket items or also known as fast-movers. So, in order to make room for the fast-movers and work at your highest efficiency, it is important that you determine the slow-movers. An elemental factor to your business is inventory and this is also the key to a growth strategy.
In this article, we are going to share the 5 methods you can use to determine slow moving inventory:
- Inventory Turnover – This is the first method you can use to determine slow moving inventory. The inventory turnover ratio is equal to the cost of items sold (beginning inventory + ending inventory)/2. A high turnover rate states that your company is selling items as fast as they come in and a low turnover rate states that the item is much slower to move of the shelves. If your company is experiencing low turnover rate, it probably means that you are ordering too many items which result in operational inefficiencies and slow moving inventory.
Average Days to Sell Inventory – The average days to sell inventory may vary from one business to another and from one product to another. As a common rule is that the product is considered as a slow mover as it has had less than 6 months of demand. If you want to calculate more accurately, you can always use forecasting tools. This is especially important for those businesses and products that operate at various live cycles than your mean inventory turnover. For instance, if the product can’t be properly forecasted and there is a change in shelf life, it means that you are facing slow moving inventory.
- Holding Expenses – The holding expenses are the expenses a business earns from storing inventory. A few examples of holding costs include the cost of depreciation, storage, insurance, maintenance, security, and the cost of capital for the company.
- Identify the Cross Profit – Once the expenses have been assigned to the product, you need to identify its gross profit. This is the price of the item minus the expense to make, hold, and sell that item. When determining a slow-mover, it is essential to see how the costs impact the selling price and what that does to the user demand.
- Forecasting – By using long-term and short-term data you will be able to determine patterns in your own inventory. Regardless of whether they are promotional, seasonal, or overall trends, you can make a comparison of the inventory turnover rates against the user demand. Identifying your product’s gross profit, the inventory expenses, and seasonality flows, you can determine which inventory is moving slowly and enable you to make more analyzed inventory decisions.
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