Economic downturn affecting the market as a whole.The price point is too high (or too low).Innovations in the product space that render the item outmoded.Not reaching the target demo with your marketing.New competition that’s grabbing your market share.You can’t solve an inventory turnover problem if you don’t know what’s causing it. Once you determine that a product isn’t performing as forecasted, here are your next steps. Many eCommerce enterprises define slow-moving inventory as SKUs that diverge from their demand forecasts. And storage is only one incremental cost of slow-moving inventory. That extra 10 cents shaved off your margin may seem small, but that’s a 5% reduction in your profit margin. If you have only one inventory turn in a quarter, you must divide $10 by 100, and the cost per unit is 15 cents. If you have three inventory turns, the storage cost per unit is $10 divided by 300, or 5 cents per unit. The per-quarter storage cost for the space taken up by the SKU is $15. Let’s take an example of a SKU where you have 100 units in stock with a profit of $2 per unit. Those are extra charges above the standard storage costs.Įven if you do your own warehousing, you’re losing money on slow-moving inventory. If you use a 3PL, SKUs that sit on the shelf for too long (usually more than six months or a year) may be subject to long-term storage fees. It increases your storage costsĪnother reason slow-moving items have lower profit margins is a higher cost of goods sold due to storage costs. In that case, your slow-moving inventory becomes a total loss. Changes in consumer preferences, innovations in the product space, or changes in fashion can render SKUs unsaleable. In a worst-case scenario, aged inventory can turn into deadstock. You just lost $100 or more of potential profit for every older model you have in stock. As soon as the new model comes out, the older model drops in price. The longer a product sits on a shelf, the lower its value is likely to be. It can lose value or turn into dead stock The more products sitting on the shelf, the less money you have to enhance your business. Inventory velocity is critical because your stock provides profits from every turn, which you can invest in marketing, product development, and new customer acquisition. It ties up your capitalĮach slow-moving item on a warehouse shelf represents a little piece of your business capital that’s not liquid. Here are just three of the ways that items with fewer inventory turns can create a drag on your operations and your growth. Understanding how to identify slow-moving inventory is critical because it harms your business. For example, if you sell a line of fitness products that includes barbells and protein powders, you’ll need to set different turnover goals for each product type. Plus, you may want to define slow inventory turnover differently for different SKUs in your product line. Precision in determining which items need help to sell will point you to the correct solutions to the problem. You need inventory management software that supports reporting by SKU. Overarching inventory metrics won’t give you the information you need to identify slow-moving inventory. Durable goods such as sporting equipment, furniture, or electronics can often spend longer in the warehouse before you label them slow-moving. For a food item, expiration dates are the guidelines for how to identify slow-moving inventory. For example, an online retailer selling fast fashion might consider a SKU slow-moving if a complete inventory turn is longer than 30 days. The definition of “slow-moving” is different for different products.
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