Aged inventory generally refers to inventory stock that has been held for longer than six months usually due to low consumption or slow sales. Aged inventory is not an overnight occurrence however, any surplus of inventory stock is both costing you money and restricting your cashflow.
Aged inventory reports
Aged inventory reports are documents that provide key metrics about the status of your inventory and information provided is grouped by cost currency, product line, product identification, unit of measure and inventory class. As one of the important inventory reports, an aged inventory report expresses:
- Quantities, value, location and descriptions of the various inventory stock items
- The length of time inventory stock typically sits on the shelf or in the warehouse before being used or sold
- Any associated carrying costs such as storage and maintenance costs that have been incurred during the time that the items have been held
- Delivery schedules and order volume requirements of suppliers that may impact the time inventory items still sitting in stock
Inventory control issues can then be identified using the aged inventory report and improvements made as a result of these metrics. Ultimately increasing stock valuations, improving the businesses cash flow and the ability of the business to service existing or new finance agreements.
Implications on inventory control
Aged inventory reports provide an insight into your purchasing behaviours. As a result of these reports and depending on the quantities of aged inventory, you can look at ways to improve inventory control activities and may also consider changing how you purchase new products.
The implications of aged inventory reports on inventory control practices are that you can assess the time products spend in inventory and focus your attention on managing slow-moving items. This, in turn, improves inventory purchase decisions and assessing the costs of maintaining inventory quality.
Conversely, failure to run aged inventory reports means you will have less insight into inventory costs, will not know what your slow-moving products are, or which products are costing the most in inventory carrying costs.
Having an aged inventory report ensure that decision making by senior management is better informed by providing additional insight into which stock moves and how quickly it turns, allowing you to focus your attention on the slowest moving items and develop a better method of inventory control.
Addressing aged inventory
The key to reducing aged inventory reduction is to act quickly and often. Managed right, the disposal of aged inventory can provide opportunities for increased sales and has the potential to generate positive customer experiences. Some common ways to rid yourself of aged inventory include:
- Negotiating a return of aged inventory with your suppliers. Returns to vendor are normally based on a percentage of your sales and should be undertaken at least twice a year as a minimum.
- Clearance sales. Offering heavy discounts is a common tactic for ridding yourself of aged inventory stock. When offering extreme discounts, however, take care to limit these sales activities in timeframe and duration, if these events occur too frequently, customers may wait to purchase, and you could find it difficult to sell anything at full price.
- Bundling. Certain products and services can be grouped together and sold at a slightly reduced price. By bundling complementary items, you can combine slow-moving products with those that have a faster sell-through rate. This helps to clear a lot of merchandise at the same time and customers will often see this as getting greater value for their money.
- Create one-off sales events or limited time offers to reward long-term customers, rethink visual merchandising and displays to attractively present over-stocked items at the event. Repackage low cost items as giveaways or gifts with purchase.
- Distribute aged inventory stock between stores or create exclusive deals for your eCommerce channels.
- Selling aged inventory to a liquidation company is an option for those wanting to free-up space quickly and with minimal effort. Potential profit may be lost, but you can clear your warehouse of excess stock, reduce carrying costs and receive an instant cash boost.
If you absolutely cannot sell aged inventory there is always the option to donate items to schools, charities or community groups. Not only does this offer potential tax benefits but it also provides an opportunity to raise your profile and perhaps to even attract new customers through a public relations event.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.