Inventory Turnover Tips: How to Get Your Sluggish Merchandise Moving

The word “stale” is usually associated with day-old bread. But durable goods that sit on a shelf too long can grow stale, too. Manufacturers are constantly making small changes and updating products. If you’re not careful, you could find yourself with a bunch of outdated merchandise draining your cash flow.

For every 24-hour period that a product remains on the shelf instead of being purchased by a customer, that product’s value decreases due to holding costs. That’s why it’s important to identify your slowest-selling products and take steps to move them out the door. Inventory slowdowns happen in nearly every industry. Sometimes, the reason is a mystery. But when you notice that something isn’t selling as well as you expected, there are steps you can take to turn things around.

Issues that Impact Turnover Rate

Inventory turnover is a number representing how many times inventory is sold and replaced within a certain time period. It’s important your turnover rate is not too high (where you risk losing sales by being out of stock) and not too low (which means your inventory isn’t being moved out fast enough). The rate at which your stock moves is affected by various factors. Some of those factors include:

• Obsolescence: Once a product becomes outdated, it is unlikely to ever be sold. As a rule of thumb, inventory items that have been sitting on the shelf for more than one year is considered to be an obsolete inventory item. If obsolete items are ever to be sold, it will usually be at a cost to the company selling the item.
• Inventory seasonality: Depending on the weather, some of the goods you sell may not be in high demand. For instance, most air conditioning repair companies specialize in working with heaters as well, which helps account for the half of the year when people aren’t really using their AC. Seasonal demand is very important to keep in mind when stocking your store’s inventory.
• Holding costs: Many e-commerce businesses take advantage of ordering their inventory in bulk from suppliers. However, buying too much in bulk can result in excess inventory. These extra products taking up room in your inventory come at a cost for every day they remain sitting.
• Slow turning, high-cost products: Having products that are liable to sit in your inventory for a long time can be a danger to the profit of your online company, especially if those items have a high cost. Because of this, many companies rush order high-cost items from suppliers, as it actually ends up being more cost effective than letting the product sit in inventory for a prolonged period.

Tips to Perfect your Turnover Rate

Reaching the perfect turnover rate can be a delicate balancing act. But there are some things you can do to make it easier. Here are some tips to help you optimize your turnover rate:

• Keep your inventory organized. Focus on the things you’re actually selling and make sure to eliminate products that won’t sell from your inventory. It’s important for businesses to be able to recognize trends within their company, as these can help predict trends in the future. Look through your inventory and separate it into defined inventory groups, which are easier to keep track of and notice demand trends in.
• Increase the public’s demand for your inventory. Think about running a marketing campaign to help boost your sales. You’ll move some inventory as a result of the increased sales due to the campaign. Make sure you’re monitoring your return on investment during and after the campaign.
• Keep in close contact with your suppliers. Review purchase prices with them on a regular basis to make sure you’re taking advantage of anything your vendors can do to help lessen costs for you.
• Check your pricing. Sometimes slow sales aren’t because people aren’t interested in the product, but rather because your price is too high. Check what your competitors are charging and make sure your prices are in line with the market. If necessary, offer a discount to move things along.
• Use product bundling. You might be able to bundle slow-selling merchandise with high-demand items at an attractive price to get them moving. Product bundling is popular with buyers because they feel like they’re getting a deal and it’s a great way for businesses to promote sluggish products.
• Forecast demand as accurately as possible. Take a look at your inventory’s historical demand to find possible trends in demand variability. Consider a ‘pull’ system in which items are only manufactured on demand, reducing inventory on hand and saving the company money.
• Redistribute inventory. If your business has multiple warehouse locations, consider taking advantage of inventory redistribution. During redistribution, you move items in your inventory from one warehouse to another that has a greater demand for the item. This way your overall inventory count remains low, and you’re selling items you were not able to sell previously.
• Track inventory obsolescence:  In an effort to prevent the occurrence of obsolete items within your inventory, pay close attention to the demand patterns of your customers. If faced with a considerable amount of obsolete inventory, one strategy to find the cause is to work backward to find where there was an error. For example, purchasing too much in bulk could result in leaving too much excess stock, or there could be an issue with the process you use for demand forecasting.
• Offer pre-orders: If you offer pre-orders to your customers, you can better plan your inventory purchases because you know what has been pre-ordered, helping you forecast current demand.

The Takeaway

When running an e-commerce company, it is important to keep a close eye on the turnover rate of your inventory. Because each piece of inventory comes with a certain price per day just for sitting on the shelf, it’s important to have a turnover rate that is not too low. However, it is also possible to have a turnover rate that is too high, in which you can run into making too many sales, and not having enough inventory in your warehouse to cover all those sales. Turnover rates normally fluctuate some, but it’s important they don’t lean too far in one direction or the other. Many e-commerce companies employ a number of strategies, including those above, when managing their turnover rate.