By
Jules Romeo
As an eCommerce business manager, one of the most frustrating issues is slow-moving inventory.
More sales mean more revenue and faster growth. However, inventory that sits indefinitely with no interest or buyers can be a damper on that growth. For your company’s success, you must become an expert at identifying slow-moving inventory; as well as finding ways to stop it from becoming a problem in the future.
This article will walk you through; what slow-moving inventory is how to prevent it, and how working with the right third-party logistics provider can help.
What Is Slow-Moving Inventory
Slow-moving inventory is exactly what it sounds like. It refers to the products you carry but hasn’t sold for an extended period; typically three to six months or more. Precisely what counts as slow-moving will depend on what kind of product it is. When products lack ample customer demand, they’re essentially “living rent-free” in your warehouse.
This leaves inventory that takes up valuable space while wasting your money in terms of opportunity costs and more.
How to Identify Slow-Moving Inventory
Now that you know it’s a problem, you need to know how to locate the slow-moving culprits. You can use several methods to better find slow-moving inventory. Furthermore, these methods will all require ample data and the correct use of it.
For example, by finding your Days Sales of Inventory (DSI) you’ll be able to tell how long it takes to sell certain products. Understanding your inventory turnover ratio, which we’ll cover next, is another valuable method to find slow-moving inventory. To benefit from these equations, you must have an inventory management system. Whether that’s a basic Excel sheet or a complex software program, you need to be able to keep tabs on these products; as well as what quantities you have.
Inventory Turnover Ratio
The inventory turnover ratio is the calculated “cost of goods sold anddivided by the average inventory for the same period,” according to Investopedia. It is also a basic way of understanding how effective your company is at turning inventory into purchases.
Higher inventory turnover ratios are generally better unless they’re high because your company isn’t adequately stocking products to meet demands. Low inventory turnover ratios could indicate that there isn’t enough demand for the number of products you have in stock.
Without an inventory management system, it would be difficult and needlessly time-consuming to determine the inventory turnover ratio.
Finding the Cause of Slow-Moving Inventory
To avoid having a slow inventory problem in the future, you need to understand why slow inventory is happening at your business.
What’s the root cause of why certain products aren’t selling as fast as others? Another question could be why aren’t products selling as fast as they used to? The reasons can vary and depend on your exact organization but can include incorrect forecasts for how much you thought you’d sell, more substantial competitor marketing efforts, or overzealous ordering. Inadequate promotion, which we’ll go over next, could be another insidious reason that your inventory is sluggish.
Promotional Campaigns
Marketing is the engine that drives new potential customers to your business and gives them a reason to buy your products and services. If the customers aren’t materializing for the items you’re selling, it could mean that you’re not marketing correctly or at all. Examine what promotional activities you’re regularly doing, and consider adding some of the following to your marketing mix:
- Email marketing — Email marketing is one of the most trusted and reliable forms of communicating with customers. It’s also a great way to target lookalike buyers to those that do purchase your slow-moving items.
- Expanding your reach — If items aren’t selling well on your website, maybe they’d sell better on a different eCommerce marketplace. Do your research to find sites that will attract the right buyers for your inventory.
- Sales and bundles — Get creative with the marketing of slow-moving products and try offering discounts to entice buyers. Time-limited promotions are often an effective way of instilling a sense of urgency to buy in your customer base. Bundling your slow-moving products with more high-value products is another method to sweeten the offer for customers.
Website Layout & Design
Another potential cause of your slow-moving inventory problem could be your website. These days, it’s non-negotiable to have an attractive and easy-to-use digital presence, especially if you’re an eCommerce business. There are too many user-friendly digital stores out there for buyers to even consider spending time on a website that’s slow, poorly designed, or confusing to use. Figure out how easy it is to locate your slow-moving inventory on your website, and if you find there’s a UX problem, invest the time to fix it.
How to Improve Inventory Management and Prevent Slow-Moving Inventory
Getting rid of slow-moving inventory is a significant milestone, but you should also be forward-thinking and learn how to stop slow-moving inventory from accumulating in the future. Essentially, it boils down to improving the way you track your inventory so you don’t over-purchase items that historically don’t sell well.
You can accomplish this in several ways, including classifying your inventory based on how fast it historically sells, regularly auditing your inventory to get a temperature check on how much you have on hand of what items, obsessively tracking your sales, and, of course, using an inventory management system to keep stock of your stock.
Smart accounting and calculations are another way to stay on top of inventory levels. We’ll cover one such calculation, economic order quantity, next.
Economic Order Quantity
Economic Order Quantity (EOQ) is a figure that expresses the exact, cost-cutting order quantity a business should strive to hit. Determining your EOQ can help you make sure you have just enough inventory, but not too much, and that you reduce costs involved with managing inventory.
According to Investopedia, you can determine EOQ by finding the square root of setup costs times demand rate times 2, divided by holding costs.
Inventory Management with 3rd-Party Logistics
Proper inventory management is a complicated business. That’s why it’s often best to partner with a third-party logistics (3PL) company that specializes in inventory management and more. 3PL’s offer expertise in supply chain operations from start to finish and can help your eCommerce business get a handle on your inventory in addition to helping with warehousing, packing, shipping, and more.
LEARN MORE ABOUT BEST PRACTICES FOR E-COMMERCE INVENTORY MANAGEMENT.
Warehousing
Products take up space, but a 3PL can take the burden off of you with warehousing solutions. Experienced 3PLs will have the processes in place to ensure that inventory stays organized and ships quickly.
Packing & Shipping
3PLs handle other time-consuming tasks for you, such as packing and shipping. From an orderly inventory, they can handle the process of preparing shipments for order and delivering them to their location on time and intact.
Inventory Management
You already know just how crucial inventory management is for your business. A 3PL can help you get all the benefits of an inventory management system at a lower initial cost. For small per-order fees, a 3PL can keep track of your inventory levels so you always know what you have and never run out.
Print Bind Ship: The Best 3PL for eCommerce
As a business professional, you know that you have to spend money to make money. One of the smartest ways to spend your money is to invest in professional partnerships, such as a relationship with Print Bind Ship. Working with Print Bind Ship is like having your own professional warehousing team at your disposal and ready to help when the need arises. Let us help you make better business decisions by handling all the complex background logistics for you.