Inventory Aging and How to Avoid Its Negative Consequences

While it can be painful to think about items that aren’t selling, you simply can’t afford to ignore it. Properly calculating inventory again will give you more insight into your retail business and permit you to adjust inventory accordingly. In the long run, you will have a better handle on your business and more money in your pocket. Aging inventory is any item that sits in your warehouse and doesn’t sell either quickly or at the full retail price.

Since it provides outstanding visibility into your stock and enables you to alter your inventory as necessary, aging inventory is a popular statistic among firms that sell products. Discover the significance of utilizing an aged inventory plan and how it can improve your complete inventory management plan. The bad news is that inventory holding and carrying costs will not go down any time soon. But, luckily for you, aging analysis can help your company avoid long-term storage fees — which will save the company a lot of money in the end.

Therefore, it’s important to keep tabs on how much inventory is sitting on the shelf and for how long. This will give you insight into what products customers are buying so that you don’t invest a lot of money into products that will never sell. Analyzing inventory age assists in adjusting order quantities, reordering points, and aligning purchases with customer demand to avoid overstocking.

  1. When you have a build-up of aged inventory in your warehouse this can cause problems for your business.
  2. A product’s ROI may be determined by the main metrics highlighted in aged inventory reports about your oldest items’ condition and status.
  3. This aging inventory requires careful examination and efficient management.

But inventory age can give a huge boost to your existing management approach, and help you to make necessary pivots with your products (that may have otherwise gone unrecognized or unresolved). To help your inventory management strategy excel, you’ll need to bring in a variety of software and technologies, in addition to comprehensive analytics and reporting. While trial and error will inevitably be involved in finding the right inventory tools for your business, integrating inventory age has been known to benefit brands across all industries. As we noted in several stages of our analyses, statements that did or did not fit into factorial loadings were not always conceptually meaningful. Nor did we eliminate statements because of their failure to fit within a model.

Automated inventory software

There are countless ways to improve the margins of an ecommerce business when the proper consideration is given to aging inventory combined with insights into other key performance metrics of the business. Evaluate if multiple distribution centers is the best strategy or if there are potential savings to centralize inventory to gain a better rate per square foot. 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. It’s essential to keep track of the age of the products in your inventory. Your inventory is one of your most significant assets, if not your biggest asset.

What Action Can You Take to Reduce Old Inventory?

TranZact assists you with making data-driven inventory decisions that can result in lower costs, increased operational success, and increased sales with its inventory management software. Taking advantage of the potential of inventory age analysis enables firms to improve their inventory management, better respond to client demands, and maintain a healthy financial position. Continue reading to understand how organizations can cut holding costs, free up cash flow, and make data-driven decisions to increase profits by actively managing aging inventory. The purpose of an inventory aging report is to help retail business owners identify slow-moving SKUs, which can inform strategies to increase ITR and reduce inventory aging.

You can also have a massive clear-out sales event with inventory over a year old can help move stock quickly. You might not recover the hard costs, but you’ll gain it back with more inventory real estate space left in the warehouse. If there are lingering items from your big sale, consider donating it to a charity. Taking into account the types of products being sold, it’s helpful to compare against industry averages and benchmark goals to understand how your ecommerce business compares to similar business models in the market. A business focusing on CPGs will analyze aging inventory much more differently than a business specializing in clothing. You’ll need to implement several applications and technologies to make your inventory management strategy successful.

For this to happen, your inventory and purchasing departments must work together. Inventory management software may automate aging reports, give alarms for important thresholds, and provide real-time insights into inventory health. It simplifies decision-making processes, allowing you to conduct effective inventory management measures on time. You can enhance warehouse management through real-time inventory tracking and supply chain management software. Radio-frequency identification (RFID) tags, for example, enable precise inventory tracking, helping prevent both stockouts and overstock.

Understanding the cause empowers you to make smarter inventory management decisions. For instance, you might adjust your purchasing decisions or marketing promotions to shed the excess aged inventory. Routine inventory audits ensure your stock records match what’s actually sitting in your warehouse. Not only does this improve inventory accuracy, but it can provide visibility into what stock items aren’t moving (leading to better inventory control). Although there are numerous tools and assessments of ageism, we argue that we are currently less in need of an ageism score and more in need of a way to create positive change. One way that change can occur is through an inventory of items that is well suited to internal and collaborative discussions of age as a value that includes attitudinal, behavioral, and experiential dimensions.

Make Data-Driven Sales Decisions Based on Inventory Age

There’s a good probability that your inventory management will encounter roadblocks and problems. When that happens, you won’t be able to invest in new products, especially if you’ve sunk in cash on SKUs with less demand. This is because an in-depth, intelligent aging study guarantees you always know exactly what you have on hand. These reports provide the data you need to increase your inventory turnover (i.e., less product expiration, spoilage, obsolescence, and other issues). Goods that haven’t sold quickly or for their full retail price are called aging inventory.

Explore the Point of Sale system with everything you need to sell in person, backed by everything you need to sell online. Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets. It is to be noted that every organization differs in what they look for and what parameters they track. Therefore you should take a detailed assessment before you start your analysis.

If you have information regarding slow-moving or unsellable items, you can make informed decisions to generate demand and increase income. If you’re not in a financial position to adjust prices just yet, you can also consider improving your product listings. Make slight changes to a product’s photos and description copy to prompt sales. You can also add social proofs, like reviews and testimonials, or implement cross-selling to prompt shoppers to buy products that are complementary to those already in their cart. For example, swimwear is in highest demand in the months immediately preceding summer and for most of June and July.

You may have thought only perishable food items had shelf lives, but many unexpected items have best-by dates. Obsolescence risk essentially is the risk that a product or service may become obsolete and will not be able to be sold for expected market value. The aged inventory product may need to be sold at a steep discount, perhaps even below its cost. Based on these you can create graphs and dashboards which we’ll be discussing further later. The page’s photos, description, location, and more all influence whether someone converts.

While the inventory aging report isn’t common in accounting software for small businesses, it’s often found in accounting software that’s ideal for mid- to large-sized companies. For example, Odoo and IBM allow you to generate an inventory aging report. An inventory aging report may look similar to the more commonly used accounts receivable (A/R) aging report, with columns for aging “buckets,” such as one to 30 days or 30 to 60 days. It might include details such as the style or item number, warehouse, quantity, pending transactions, and available to sell. TranZact is a team of IIT & IIM graduates who have developed a GST compliant, cloud-based, inventory management software for SME manufacturers. It digitizes your entire business operations, right from customer inquiry to dispatch.