How to Deal with Slow-Moving Inventory?

The modern economy creates quite tough conditions for companies. In order to develop and withstand competition, every expense must be justified. Creating sales, profiting on assets, and profiting on investments—all this costs companies a significant amount. In order to invest capital where it is really needed, it is necessary to minimize costs where possible, for example, for the maintenance of slow-moving inventory.

In this article we will talk about how to deal with slow-moving inventory. This is an important topic to understand, because while these goods are in stock, the company loses millions to keep them.

Slow-moving stock refers to inventory items that have a low rate of sales or turnover, and are therefore held in stock for an extended period of time. These items tie up a company's resources and can lead to increased holding costs and reduced cash flow.

Of course, the classification of slow-moving inventory depends on the company, or rather on what it sells. For example, if a company is associated with the food industry, then after about a week in stock, the product will be considered slow-moving.

The situation may be completely different with a company that produces spare parts, where the definition of slow-moving inventory will be determined differently: in order for goods to "stagnate" in the warehouse and begin to make losses, it will take several months.

Predicting the possible impact of slow-moving inventory is the most important process for supporting current business activity for many companies. Calculation and planning of inventory turnover time is the main step for further forecasting of possible problems associated with a slowdown in the movement of stock. Competently solving these problems helps to prevent negative consequences. Otherwise you may face problems with shipment frequency, overstock, inventory turnover, gross profit etc.

Storage of surplus items can cause inconvenience in warehouse logistics, and it may be necessary to move these items around for various reasons. Money that is stuck in inventory could be put to better use when invested in faster-moving items. Also, goods lose value due to obsolescence when more modern analogs appear.

The impact of slow moving stocks needs to be studied for each specific product category, because the conditions of storage, movement, and transportation can vary significantly, for example, for food and technical products, as well as medicines and chemical products.

For perishable products, faster turnover must be ensured, otherwise you will have to invest in purchasing and maintaining additional refrigerators. Technical products contain liquids or materials that lose their properties over time and become dangerous or impossible to use. This, in turn, also requires additional costs.

Each company has its own characteristics, both in terms of product type and inventory planning conditions. To figure out the best way to optimize these processes for you, and choose the right tools for analysis, you need to consider all the causes of problems.

First, it is important to know your inventory turnover and how to calculate it. To do this, multiply the gross profit by turnover. A large number of months for a particular product indicates slow turnover. This means that this product takes up a lot of space physically, slows down the turnover of capital, and, as a result, reduces the percentage of possible profit. This, in turn, may be caused by a general decrease in market activity, the emergence of competitors with a more aggressive advertising campaign, or improper planning of purchases and sales, etc.

Often, improper inventory management can lead to either a complete absence of goods in the warehouse, or to slow-moving goods. Therefore, we do not recommend saving on specialists who deal with these issues, because financial losses always exceed the amount of remuneration for this work.

Proper management will reduce the time goods are stored in the warehouse. Timely replenishment of stocks is a sign of proper planning and inventory management.

There are many ways to get rid of slow-moving inventory. Each company will need its own approach, but you will definitely find one that suits your company in the list below.

Managing inventory can help you save money and meet customer demands while controlling costs. Knowing what's in your warehouse and the speed of your inventory allows for better supply chain management. In today's unpredictable economy, it's tempting to overstock, but it's important to increase stock levels gradually and track sales closely.

Monitoring goods can help determine what's selling and what's not. Monitoring, of course, must be automated: there are a lot of software solutions to perform this function.

Identifying the less demanded inventory before eliminating it at the end of the season is crucial. Regularly monitoring inventory and sales volume can help you sort stock-keeping units (SKUs) by category. It is important to compare current inventory with targeted inventory and consider marketing and production plans. Slow-moving inventory often accounts for 80% of SKUs but only 20% of sales volume.

Experts advise careful planning and using the three R's—re-market, recycle, and remove—to eliminate excess and obsolete inventory. Excess inventory can be sold at a lower price for quick sales, and plastic and metal can be recycled for monetary gain by using the services of a recycling company. You can also remove old and unsellable items by:
· Returning them to the manufacturing company for credit;
· Donating them to charity and getting a tax credit;
· Hauling them to the dumpster.

Reviewing your slotting strategies can help you remove slow-moving inventory and create a solid plan. Check where slow-moving inventory is placed in the facility and consider using a software program to track slotting decisions. Proper slotting helps put products in the best position and allows you to allocate sufficient space within the storage facility.

Liquidating old inventory is a good strategy for some business owners to sell slow-moving stock at the end of a season. When discounting items, start with a smaller price cut and gradually increase the discount to reach more customers. Flash sales are effective in creating urgency.

Some companies purchase excess inventory, but be aware of the pros and cons of using this strategy. Liquidation companies may not purchase all products, so it's essential to have a contingency plan and a solid strategy.

Bundling is a marketing strategy that groups products together at a reduced price, attracting more customers and eliminating slow-moving inventory. Complementary products should be bundled, combining trendy with slow-moving stock items. Pairing low-margin with high-margin products can streamline pricing, and large amounts of a specific product in a discounted offer can help move large amounts of stock quickly. Bundling improves price management and attractiveness to customers.

If you have a brick-and-mortar store with slow-moving inventory, you can create an online store or business website to sell your products. This is an excellent technique to get rid of your slow-moving products at the end of the season. On the other hand, if you don’t want to spend money on creating a website, SEO, marketing, and related strategies, you can sell them on eBay, Amazon, and other online platforms.

Before you start selling, we recommend that you familiarize yourself with the rules and requirements of the platform you have chosen.

Donating goods can prevent financial complications. Non-profits offer tax deductions and can accept large shipments. Discuss the situation with your accountant for maximum tax deductions.

Experts recommend taking a proactive approach to avoid problems like excess inventory. Using an effective inventory management system enables you to lower your operating expenses and eliminate expensive inventory.

Slow-moving inventory happens for many reasons, so organizations must use different methods to try to identify the situation as early as possible. Here are a few examples that illustrate these variations. Note that each case has three steps:

1. Identify the slow-moving inventory problem.
2. Diagnose the cause.
3. Choose a remedy based on the cause.

A businessman sells dishwashers and other major appliances, keeping a few of each on hand to meet demand. His dishwashers tend to stay in inventory for up to four months, but he notices that some have been on hand for five months, becoming slow-moving inventory.

He checks the other appliances in stock and discovers refrigerators and washer/dryer sets are also selling slower due to economic conditions, causing customers to delay large home purchases. He offers a solution targeted at his customers: an extended warranty and discounts through periodic sales.

In early 2020, Jane's cloth face mask business experienced a surge in demand, prompting her to increase production. However, after six months, she noticed a decline in sales despite constant monitoring. Further investigation revealed that her competition had overtaken her in website traffic. Jane rectified the issue by investing in search engine optimization, social media ads, and website enhancement, which improved sales.

The problem was not the product or demand, but Jane's lack of outreach to potential customers. Reducing prices was unnecessary and unlikely to affect sales.

A clothing brand is faced with the problem of a large accumulation of winter coats in stock. The company tries all methods in order to sell these coats, but as it turns out later, the only solution to this problem was the change of season from summer to winter. After November, the problem was solved by itself.

This case shows that sometimes product promotion does not depend on discounts and prices, but on other factors that we cannot control.

Slow-moving inventory consists of products that for some reason are not so in demand, but are still periodically sold.

Obsolete inventory is products that have lost their relevance. This phenomenon can be seen especially clearly in gadget brands. Old models are gradually becoming obsolete. For example, if a company releases a new phone model, then the previous one will become a slow-moving product. This means that there will be buyers who will prefer the old model because of the familiar functionality or to save money. However, after 2-3 updates, this model will already be obsolete, as 3 new generations of the gadget will have appeared.

The difference between slow-moving inventory and outdated inventory is difficult to notice, but with a good analysis of sales and warehouse balances, it will be possible to identify which products belong to which category.

Although slow-moving inventory damages capital, there are many ways to get rid of it, and at the same time increase sales.

To solve the problem of slow-moving inventory, a correct and thorough analysis is very important, because your further actions regarding these goods will be based on it. Priceva’s Product Availability Tracker will help you with this: it analyzes your entire assortment, monitors the availability of products, and provides accurate reports.

In order to be less distracted by slow-moving inventory, you can move it to another place, apart from where the other goods are stored. This is important because when a slow-moving product accumulates in a warehouse, it creates a false impression that it is in demand and is about to be sold. It is better to free up more space for goods that are truly in demand, and create a clear line between popular and unpopular goods. This will protect you from false illusions.

Finally, do not forget about all the methods listed in this article; something will definitely be able to help you.

Non-moving inventory refers to the stock of products or materials that remain unsold or unused for a prolonged period of time. It can also refer to goods that are obsolete or no longer in demand, making them difficult to sell or dispose of. Non-moving inventory ties up resources and can lead to financial losses for a company.

There are several reasons why you may have slow-moving items, including poor demand, pricing, competition, seasonality, lack of marketing, and inadequate inventory management.

Here are some ways eCommerce can handle slow-moving items:

· Offer discounts or promotions to customers to encourage them to purchase slow-moving items.

· Combine slow-moving items with fast-moving items to make an attractive bundle deal.

· Increase marketing efforts to promote slow-moving items, including email marketing, social media marketing, and paid advertising.

· Regularly review inventory to identify slow-moving items and adjust order quantities accordingly.

· Consider liquidating slow-moving items by selling them at a discount or donating them to charity.