Understanding aged inventory is simple: It’s stock that’s sat in the warehouse or on your shelves for a prolonged period of time — beyond the sales cycle, or in some cases, well past its expiration date. Dealing with aged inventory isn’t as simple.
If your products aren’t perishable, older inventory won’t necessarily go bad. But even if the age of your stock doesn’t affect its usability, it can still have consequences for your business. It ties up capital you could be spending on more profitable items, racks up carrying costs like storage fees, and harms your profit margins by requiring a big markdown to finally get it off the shelf. Or, worst of all, it turns into dead stock that takes up valuable space and offers no return.
So how do you stay on top of your slow-moving inventory? Let’s look at some strategies for sniffing out the stock that’s aging — and more importantly, the methods you can use to get inventory off the shelf before time is up.
How to detect aged inventory
While goods going bad might not be as obvious as a two-month-old carton of milk, you still need a way to identify aged inventory before it sours your bottom line. Here are a few methods for keeping tabs on slow-moving items.
ABC analysis
ABC analysis is an inventory categorization technique that sorts inventory into three categories based on value and sales frequency: “A” for high-value, fast-moving items, “C” for low-value products that might move more slowly, and “B” for the items that fall somewhere in the middle. If you’re concerned about aging inventory, look at your C items to see which products contribute the least to your business.
FIFO method
The “first in, first out” (FIFO) pick method prioritizes selling the oldest stock first. With this method, you’ll ensure that products move off the shelves, reducing their likelihood of expiring or becoming outdated or obsolete.
Tracking inventory by lot or batch number helps you pinpoint the oldest units so your team knows to pick them first for sale or order fulfillment.
Regular stock audits
Conducting periodic physical counts of your inventory is a hands-on way to uncover any discrepancies between your records and the actual stock on hand. If you have enough inventory that physical counts feel impossible, try cycle counting — where you count different sections of the warehouse on a regular schedule — to make the process more manageable.
And regular audits will give you a chance to go beyond counting and visually inspect your items for signs of wear and tear, damage, or approaching expiration dates, enhancing your overall inventory control.
Inventory turnover ratio
This key performance indicator (KPI) measures how many times you sell all your inventory within a given period. If you calculate and monitor this ratio regularly, you’ll have an easier time identifying sales trends and potential problem areas. A low turnover ratio often means certain products are wearing out their welcome in the warehouse.
Automated inventory management systems
Comprehensive inventory solutions like Fishbowl will automatically offer real-time insights into your inventory levels and sales patterns. With Fishbowl, you can track metrics like your inventory turnover ratio and generate reports that highlight slow-moving items so you can address potential issues before they impact profitability.
Inventory aging reports explained
We mentioned the benefit of report generation above, and when you’re managing inventory, an aging report is what gives you the best snapshot of the length of time each item has sat on the shelf. An inventory aging report will usually include components like:
- Item description: A clear identification of each product.
- Quantity on hand: The number of units currently in stock.
- Age categories: A breakdown of inventory by how long it’s been in stock (0-30 days, 31-60 days, 61-90 days, and so on).
- Total value: The monetary value of the inventory in each age category.
It’s easy to lose track of how long things have been sitting around, especially if you keep a high volume of products in stock. But an aging inventory report (sometimes known as an aged stock report) sheds light on the darker corners of your warehouse, revealing the products that need your attention. Here’s a look at the benefits:
- Improves inventory visibility: You’ll be able to identify slow-moving stock or obsolete items before they start to weigh your business (and its finances) down.
- Reduces carrying costs: With the right insights, you can improve your cash flow, freeing up capital that’s currently tied up in storage, insurance, and potential write-downs or write-offs.
- Minimizes stock obsolescence: By identifying outdated stock early, you can take action early to prevent write-offs and losses before an item is too far gone to move.
- Improves sales and profitability: Slow-moving items can still offer opportunities. Running targeted promotions or kitting them with in-demand products will help you clear out old stock while boosting sales.
- Enhances inventory planning: Knowing what moves quickly and what doesn’t allows you to optimize purchasing, stocking, and product lifecycles.
6 ways to effectively manage and reduce aged inventory
If you want to turn slow-moving stock into fast-moving profits, you’ll need to take a proactive approach to inventory management. These proven strategies reduce aged inventory and keep your warehouse running smoothly.
1. Implement regular inventory audits
Performing audits on your stock is the most effective way to get an accurate picture of the products that are currently on your shelves. But doing a full physical inventory can be disruptive to your operations.
Cycle counting offers a more manageable approach, allowing you to count just one small portion of inventory at a time so you can keep a close eye on stock levels without shutting everything down. Whatever method helps you check stock levels on a regular basis is key.
2. Optimize inventory turnover
A high turnover ratio is a vital part of inventory health, but simply tracking your inventory turnover ratio isn’t enough. Go beyond sales data analysis and use those insights to streamline your product line, eliminating slow-selling items and focusing on the products that see consistent demand.
A good turnover ratio can also help prevent the bullwhip effect, where small demand fluctuations at the retail level cause bigger swings in demand further up the supply chain. And with a higher turnover ratio, you may even be able to negotiate better prices with suppliers to lower your cost of goods sold (COGS).
3. Use the FIFO method
FIFO doesn’t just prevent items from becoming obsolete. It ensures that the products you’re selling are fresher and haven’t been damaged or lost their luster by sitting in storage for too long. To put the FIFO pick method into practice, optimize your warehouse layout and train your picking and packing team to pull the oldest items first.
4. Analyze sales trends
Looking at sales data reveals the slow-moving SKUs, but you can dive even deeper by examining factors like seasonality, promotions, and market trends. Thoroughly analyzing your sales data will help you anticipate future demand and adjust purchasing to avoid adding more aged inventory to the mix.
5. Offer promotions and discounts
Promotions are a great way to move slow-moving stock, but a simple discount isn’t your only option. Consider bundling slow-moving items with popular products or creating limited-time offers to give customers a sense of urgency. You can even tap into holidays and seasonal events, strategically timing your promotions to get an extra sales boost.
6. Use inventory management software
Managing your inventory with a pen and paper or a spreadsheet might work if you only carry a handful of products. But for most companies, a software solution is the best way to avoid aged inventory and overstocking.
To maximize the benefits of the platform you choose, look for a solution that integrates with QuickBooks and other business solutions so you can keep the data flowing and maximize efficiency.
And with a solution like Fishbowl, you can track more than expiration dates. Keep an eye on metrics like sales velocity, lead times, and carrying costs for the most comprehensive view of how your inventory is performing.
Make aged inventory a thing of the past with Fishbowl
Without the right tools and strategies, managing aged inventory will feel like a constant battle. But with Fishbowl, the all-in-one inventory management solution that makes it easy to stay on top of your stock, you’ll get real-time tracking and actionable insights to help you optimize your turnover and improve your inventory planning. And with Fishbowl’s seamless QuickBooks integration, your operations will be more efficient than ever.
Are you ready to take control of your stock and gain end-to-end visibility over your operations? Schedule a demo of Fishbowl, the intuitive, scalable, and user-friendly inventory management platform.