Slow Moving Inventory: How to Deal with It (Part 1)

slow moving inventory - liquidationOnce you have been selling online for a period of time, you inevitably end up with some slow moving inventory. What’s slow moving inventory? It is the stock that just doesn’t move or moves very slowly in comparison to your other stock items.  These items take up valuable space as well as retain the capital you expended in purchasing the items.  Sometimes, as the items age, they can become even less valuable and result in further losses.  Your business growth could be hampered and even totally stifled by having too many slow moving inventory items.  So what can be done to reduce the problem?

What is slow moving inventory?

Slow moving inventory item for you might not be the same for a different seller. Also, how you define your slow movers could differ too.  Here are a few basic ways of determining a slow moving inventory item.

Overstocked.  One way of determining if you have overstock is to work out how much you sell over a 12 month period. Typically, your sales need to exceed a 50% stock level in a 6 month time period.  Any stock held that is over the demand for the item in 6 months would be classed as overstock and be sold off through one of the online liquidation market places.

Buying in bulk. When ordering in bulk to reduce the costs of items, your demand versus stock holding will more than likely not show a true reflection.  Your sales may improve due to the lower pricing strategy. However, your stock holding would be a lot higher and not in direct comparison to the sales made.  So, although your stock holding would show as slow moving in this instance, you would need to take into account the lower costing due to the bulk orders.  Stock turnover can be a good way of checking for slow movers, but there are some exceptions.

Another method

Dispatch of goods.  One of the best ways to define slow moving inventory items is to see how often the items are dispatched to customers.  If you dispatch goods on a regular basis but certain items are not sent out within a 3 to 4 month period at all, you could consider these items to be of excess or slow moving stock items.  You can set your own limits when determining whether or not an item is slow moving. You should look at a set time period or an average over 12 months. Once done, then you need to compere it to a specific value of items or a percentage sold.  As an example, you could decide that if you do not sell an average of 10 of an item over a 3 month period, the item is noted as slow moving inventory and needs to be liquidated.

You must use the 3 methods above to quickly determine whether your item is overstocked, a slow turner due to bulk purchases or an actual slow moving inventory item.  Firstly, you should decided on a formula and a threshold to work with! You can then put methods of monitoring into place. That will allow you to be on top of the slow movers in your stock holding.  You should also try and pull out relatively detailed reports on your slow moving inventory items. This will help you move on to deciding what to do with these items.