Mid-year
review, and slow moving and obsolete stock start coming up in every single
meeting…it´s pretty much inevitable; inaccurate forecasts, undersells,
overstocks, there can be hundreds of reasons why a sku become a slow moving,
and we might explore in deep some of them in future posts, but whatever the
reason is, when inventory doesn’t move, the business will incur in associated
carrying costs and lose of valuable resources that could be used to invest in
your business.
Defining what is “slow moving” is not easy as the criteria will vary from company to company, and what is considered slow moving from some retailers might not be for others, but there is a general rule that can be applied to most companies to define if a reference is slow moving or not; Having stock worth 6 or more months of demand for any given item will indicate that this particular sku is a slow moving.
Defining what is “slow moving” is not easy as the criteria will vary from company to company, and what is considered slow moving from some retailers might not be for others, but there is a general rule that can be applied to most companies to define if a reference is slow moving or not; Having stock worth 6 or more months of demand for any given item will indicate that this particular sku is a slow moving.
Now we know
what slow moving is, we can focus on the impact that slow moving stock has in
our business. From an outside perspective, you can think that slow moving stock
shouldn´t be the focus of an organization as “it only has a negative effect on our
inventory”, but if we dig a little bit further, we will realize that the impact
of slow moving stock affects a business in ways that we never thought about before.
- Interest paid on borrowed money. When inventory doesn't sell, you are incurring more interest charges.
- Insurance costs derived of inventory on hand.
- Obsolescence provisions; financial reserve to cover losses, write-offs, etc
- Storage space of course.
- Costs incurred when your warehouse is full of slow moving inventory; outside storage costs, build of new facilities, movement of stock from one picking location to other etc.
- Cost of destruction of obsolete stock.
- Depreciation of the inventory month after month.
- Time and personnel, including managers, stock keepers, material handlers, cycle counters, planners and controllers.
These are only some of the aspects in which
slow moving stock has an impact, therefore the sooner you tackle the “slow
movers” the more profitable your business will be.
In future posts I will try to extend this topic
and underline the causes and also possible solutions to slow moving inventory.
