The Causes of Slow Moving Inventory – And How to Stop Them

Anyone running a retail operation is all too familiar with the standard acronym SKU, or stock-keeping unit. If you’re the one charged with managing your inventory, you’re probably also familiar with SMI, or slow moving inventory. If you’ve never heard that term before, you need to keep this acronym in mind too – because it can prove to be a pain and a drag on profits.

Slow moving inventory is merchandise that is sitting idle in your warehouse. The definition of slow moving inventory varies from organization to organization, but as a rule of thumb products that have less than 6 months of demand in the last year can be termed as “slow moving.” The main problem with slow moving inventory is that it ties up both warehouse space and capital without giving you any return on investment.

No retailer wants products that don’t sell, so how do ecommerce merchants find themselves in this predicament? And better yet, how can you prevent it from happening to begin with? Here are a few common mistakes we see on the fulfillment services side that lead to inventory issues:

Poor forecasting: This is perhaps the biggest reason why inventory gets stuck. Since it’s difficult to gauge the exact demand for products, especially if they’re new to the market, retailers often find that their sales forecast were a little too optimistic. Most of these undersold products then have to be marked down or written off completely, which means a dent in profits.

Irregular or inaccurate inventory checks: Not reviewing your stock regularly is another mistake retailers frequently make. If you don’t keep a tab on what is selling and what your current stock levels are (and I mean really are, as in “physically verified”, not just shown through your warehouse management system), what needs replenishing, and what is back-ordered, you are creating a recipe for trouble. Retailers should never place an order to their manufacturer or vendor without first checking all of these things! If they don’t, it can lead to a build-up of slow moving inventory that will be difficult to liquidate. And the worst place to be looking when realize you made an ordering error is your balance sheet!

Duplication – Storing and shipping merchandise from multiple locations is great from the order fulfillment perspective because it helps online retailers distribute products to a larger customer base with sometimes-lower shipping costs – but it can also pose a problem when it comes to inventory analysis. When turnover is low, retailers tend to spread their inventory thinly across several locations in the hope that it gets sold somewhere. While this small amount of slow-moving inventory might not seem significant in a single warehouse, it adds up. Several small stocks of unmanaged and unsold inventory in multiple locations will put a strain on your bottom line – not to mention take up even more valuable warehouse shelf space!

Have you dealt with inconsistent forecasts or discovered excess inventory you did not even know about? Contact us at Fifth Gear- we offer our clients practical solutions to order fulfillment, inventory liquidation and other inventory-related complications!

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