Slow Moving Inventory is a critical issue for all retail and consumer goods companies. Even the fastest selling products can, over time fall into a slow-moving-inventory (SMI) situation. In traditional brick-and-mortar sites, you can easily determine which items are not moving and take immediate actions to alleviate the situation. However, for online vendors, slow-moving inventory may not be as obvious until it starts tying up capital and resources that could be better invested in your business. So, how do you determine if products are slow-moving in the first place?
What defines SMI?
The retail industry considers products, usually identified by stock keeping units, or SKUs, that haven’t been purchased and shipped in a fixed amount of time, say, 60, 90 or 120 days as slow moving. SMI is considered to have a low turn rate in relation to the amount of that product in stock.
How do companies determine SMI?
Slow moving inventory is defined differently, depending on the retailer or the SKUs that you are stocking. Some sellers define items with less than a six-month demand over a twelve-month period as slow-moving inventory. This method does not, however, take into account shipping frequency, and really just defines overstocked items. Other companies use the stock turn method for determining SMI. While this method may tell you how often items sell in your inventory, it doesn’t take into consideration the number of items in your inventory. Economies of scale apply when a large volume of a certain SKU is purchased. However, while purchasing in large quantities saves you money in per unit pricing, you have to account for those cost-savings and improve your stock turn rates or you can’t expect high rates of return on large quantities of a product.
Shipping frequency simpler and more accurate
Looking at shipment frequency may be a simpler method to define SMI. Companies decide the ratio of shipped items to the number of days in a shipping period to determine SMI. Suffice it to say, larger, more expensive items, such as TVs or luxury items probably will not ship at the same frequency as hand-held electronic devices or mid-price point jewelry, for example. The threshold for TVs may be 90 days, whereas smaller, less expensive item thresholds might be set at 60 days. By looking at the frequency of shipping, instead of the slow turn of large quantities or whether you’re just overstocked, you can see what SKUSs are moving. Whichever way you decide to set up your reports and procedures for SMI, the best way to deal with your SMI is to reduce or eliminate it, altogether.
That sounds like a plan, but how?
SMI clogs up the pipeline, tying up capital and taking up space you could use for new items. Of course, you can discount these items but you can also explore why the stock is not moving by addressing some issues. Here are a couple tips on how to boost a Slow Moving Inventory.
Your website navigation may be hindering the sale of certain merchandise. Many e-commerce sites can be so jammed up with product offerings that customers may not be able to locate them easily from your main navigation tools. An internal search tool can help, also featuring the items in sidebars on your homepage or position them at the top of your category page may help put them in the spotlight.
Whether featuring your slow-moving items on a category page or in prominent areas of your website, make sure your product images show your products in their best light. Offering several views of images, with built-in enlarging links can help sell slow-moving products. Have your products looks as clear as possible, and upload high quality images to your website.
Sound Product Descriptions
Give your customers as much information as possible, including size, colors, materials used and shipping details, as well as reviews and ratings from other buyers.
Search Engine Optimization and Points Per Click
Check your keyword optimization strategy to verify if your slow-moving inventory items are showing up on a search engine results page. If you advertise in a paid search result environment, review your ad groups to determine if your slow-moving items are somehow compromised by impression share or click-through rates by ads or keywords that might relate to SMI. Compare the rankings in search results that relate to certain products not selling as well as others.
Historic databases can help you focus on separate target markets. Emailing customers who purchased similar items in the past may help move some stagnant inventory as well. Gearing your website for frequent customers and visitors adds another layer of personalization to your marketing efforts. This will help your customers find what they are looking for easier, getting to the checkout phase faster than scrolling through your site for repeat orders. These actions might boost your sales and begin to move your inventory. However, if this is not working, try selling your items through daily deal companies or, as a last resource, through a liquidator.
Offer Sale items
Offer SKUs at discounted prices. Limited time sales can prompt customers to buy certain items. A clearance section can also help promote sales of products for an extended amount of time.
Discounted items, promoted as daily deals or weekly deal items, can be more enticing to shoppers than clearance items, as they are not just hanging around on your clearance page, like yesterday’s news. It’s fresh marketing, and when you present a slow-moving item in a daily special, items will be shopped more frequently and shoppers may purchase them when they come to your site for other items.
Bonus items and multiple items
Some sites offer slow moving products as a free gift with the purchase of other items. This promotion works well for small, and relatively inexpensive items, such as cosmetics and supplements that will not add to your shipping costs. If your customer purchases a certain amount of skincare products, including a slow-moving facial cleanser can introduce customers to a new product. Offering two or three of the same item at a discounted price for quantity can also help move products.
Groupon and other Deal Sites
Offloading slow-moving products to daily deal companies, such as Groupon, may not help much, as sometimes merchants lose money with Groupon vouchers. However, taking a hit on the daily deal might be preferable to simply discarding slow-moving merchandise.
A last resource might be liquidating a large quantity of product at a reduced price to free up space in your warehouse for other products. Depending on how long your SMI has been sitting around, it might be something to consider.
Ideally, an SMI situation would never occur, as many unknown variables can affect consumer demand and buying trends. With enough experience and valuable data analytics, companies can develop what’s known as the economic order quantity, or EOQ, for their ideal product order quantity that potentially reigns in all costs involved in purchasing, delivering, and carrying stock. It is a little trickier with new products, but businesses can order new products based on the performance of similar items. Several factors used to determine EOQ include:
- Per unit price
- Shipping and handling costs
- Projected product demand
- Costs to carry unit
An important thing to consider involves weighing carrying costs per unit against the initial per unit price, by comparing different quantities. If your carrying costs outweigh the per unit purchase price, you may want to order smaller quantities until demand for that product is established.
Is it wise to keep a few slow-moving items on hand?
If the items you are considering keeping a few of in your inventory help drive traffic to your site, or position your site well for marketing purposes, then it makes sense to keep a few of these items around. Just make sure customers do not order more than you have on hand. Also, just a few of these and just a few of those things that do not really sell well can clutter your website and collectively add up to wasted warehouse space.
While SMI can be costly and inconvenient, it can be managed. You can hire someone whose sole responsibility revolves around optimizing inventory management and achieving ideal EOQ ranking. A great solution might be outsourcing your inventory management logistics to a third-party company.
Phase V Fulfillment Company partners with you to save you money by streamlining your order fulfillment and inventory management operations. Our robust, data-driven solutions are scalable and can be tailored to address your specific concerns in managing your inventory. We work with you to find the most time- and cost-efficient ways to manage your shipping needs and we advise you on how to boost a Slow Moving Inventory.
Contact Phase V Fulfillment Company to learn more about how we can work with you to optimize your order fulfillment and inventory management processes.