How can you use inventory analysis to identify slow-moving inventory?

2 Why is slow-moving inventory a problem?

Slow-moving inventory can have a negative impact on your business performance and profitability. It can reduce your inventory turnover ratio, which measures how efficiently you sell and replace your stock. It can also increase your inventory holding costs, which include storage, insurance, maintenance, and obsolescence. Moreover, it can tie up your working capital, which limits your ability to invest in new opportunities, pay off debts, or cover unexpected expenses.

3 How to measure slow-moving inventory?

One way to measure slow-moving inventory is to use the ABC analysis method. This method categorizes your inventory items into three groups based on their annual sales value: A, B, and C. A items are the most valuable and represent about 80% of your sales value and 20% of your inventory quantity. B items are the moderately valuable and represent about 15% of your sales value and 30% of your inventory quantity. C items are the least valuable and represent about 5% of your sales value and 50% of your inventory quantity. By using this method, you can identify your C items as your slow-moving inventory and prioritize them for further analysis and action.

4 How to analyze slow-moving inventory?

Once you have identified your slow-moving inventory items, you can analyze them further to understand why they are not selling and what you can do to improve their performance. To do this, you can review sales trends and patterns over time, compare them with sales forecasts and goals, and assess customer feedback. Additionally, you can generate inventory reports that show the quantity, value, location, and age of your slow-moving items. This will help you monitor your inventory levels and optimize your inventory allocation. Lastly, tracking and measuring inventory key performance indicators (KPIs) such as sell-through rate, stock-out rate, gross margin, and return on investment can help you evaluate your inventory performance, efficiency, and profitability.

5 How to deal with slow-moving inventory?

Based on your inventory analysis, you can decide how to deal with your slow-moving inventory items. Discounting, marketing, repurposing, donating, and liquidating are all strategies you can use. Discounting can help attract customers and increase sales, but be careful not to erode your profit margin or brand image. You can also improve your marketing efforts by using different channels and methods to showcase your items. Repurposing your slow-moving items can make them more appealing or useful, and donating them to charitable organizations or causes can help reduce inventory holding costs and enhance your social responsibility and reputation. Lastly, you can liquidate your slow-moving items by selling them to third-party buyers; however, you should be prepared to accept a lower price and lose control over your items.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?