Those in the business of selling goods will have at least a vague understanding of the nature of excess or obsolete inventory, and the effects these forms of inventory can have on the business holding them. A related inventory type is known as ‘aged inventory’.
In this article, we define aged inventory and outline the implications it can have on inventory management and the success of a business overall. We also provide a few key steps business owners in this predicament can take to rectify the situation and get things back on track.
What is aged inventory?
Essentially, aged inventory is stock which has spent a counterproductive amount of time in inventory as compared to normal industry benchmarks. Aged inventory is basically the products which are either slow-moving and in very low demand, or barely sell at all. These items, therefore, amount to cash tied up in the warehouse shelves, and for this reason, can be very problematic to a company’s inventory management and overall financial success.
Implications for inventory management
Aged inventory can have drastic implications for the inventory management of the business. One of the most obvious implications is that managing inventory will now include figuring out what to do with the items that are in the ‘aged’ category, and how to earn back some of the cash that is currently tied up in aged stock.
If you have aged inventory, you will have to do an audit — that is, create an aged inventory report — in order to clearly identify which products are in the ‘aged’ category. Once you have done so you will need to ensure that any future orders take into account the products which have entered the ‘aged category’ and therefore should no longer be re-ordered (or perhaps shall only be ordered for certain periods of time).
Dealing with aged inventory
The next task is dealing with the aged inventory itself. Simply throwing away the aged inventory is poor inventory management, and essentially amounts to throwing away cash. To rectify the situation business owners should take the steps required to repurpose the stock in a useful way:
One option for dealing with aged inventory is to drastically discount the items which are now in the ‘aged’ category. For example, you may create a discount deal whereby the price of a product is reduced if a customer purchases them in bulk, or, you may offer a ‘2-for-1’ deal.
These types of bulk sales deals will encourage customers to purchase the aged items and will help alleviate some of the burden in the inventory warehouse or storerooms, without giving the items away for free.
Another way you can help free some of your shelf space of aged inventory is by encouraging retail staff to upsell these particular products. You may even consider incentivising staff with a commission to focus on selling those particular items.
Another way of managing aged inventory is simply by asking your vendors to take the aged inventory back for a discounted rate.
As a last resort, you can consider donating the aged inventory to a local charity. While this is not an ideal situation as you are not gaining back any of the original cash required to attain the items, donating to local causes is a great way to improve your reputation within the community, which can help increase the likelihood of customer retention and attraction.