Aged Inventory Report: What It Is and Why It MattersTime to read: 5 minutes
It’s incredibly satisfying as a business owner to see your goods flying off the shelves and having enough stock to fill every order. But consider the opposite; when SKUs gather dust in your warehouse. Stagnant or excessive inventory can result in significant problems, such as rising storage costs and dwindling profit margins. Enter aged inventory report, a practical way to avoid the pitfalls of unsold inventory, and maintain your cash flow.
Since it provides outstanding visibility into your stock and enables you to alter your inventory as necessary, aging inventory is a popular statistic among firms that sell products. Discover the significance of utilizing an aged inventory plan and how it can improve your complete inventory management plan.
Breaking Down an Aged Inventory Report
Goods that haven’t sold quickly or for their full retail price are called aging inventory. Retailers regularly monitor their aging inventory. Once an item reaches a certain point and is still on the shelves (six months or more), it probably needs to be marked down to make room for new items. Generally, a brand’s potential for profitability increases with the rate at which its inventory is sold.
A financial report called an aged inventory report (also known as an aged stock report) calculates the number of days that merchandise remains unsold in your warehouse. Businesses use an aged inventory report to determine slow-moving SKUs and develop methods to raise the inventory turnover ratio and lower dead stock.
An aged inventory report will usually include the following:
- Quantities, prices, locations, and descriptions of various items in your inventory
- The average time inventory stock remains unutilized or unsold on a shelf or stored in a warehouse.
- Any related carrying costs incurred while the objects have been kept, such as storage and maintenance fees.
- Delivery timetables and supplier order volume requirements can affect how long inventory items remain on hand.
An aged inventory report might have columns for aging “buckets,” such as one to 30 days or 30 to 60 days. These resemble accounts receivable (A/R) aging reports which can be more familiar to many accountants and managers. Firms may include details such as the style or item number, warehouse, quantity, open transactions, and selling availability.
An accurate aged inventory report can be a crucial financial health check for your business. With its data, you can foresee possible cash flow problems and lower financial risk. The inventory aging report assists you in focusing on money invested and your projected returns on that investment. The report will also reveal the potential opportunity cost of storing too much inventory.
The Importance of an Aged Inventory Report
It’s essential to keep track of the age of the products in your inventory. Your inventory is one of your most significant assets, if not your biggest asset. As a result, it’s essential to know how much and how long merchandise is left idle on your warehouse shelves. It will provide you with knowledge about the goods consumers purchase. It’ll also prevent you from spending a lot of money on goods that are unlikely to be profitable.
Improved Efficiency for Storage Costs
It’s unlikely that you will ever completely avoid the expenses associated with storage and carrying inventory. The good news for business owners is that aging analysis can save your business money by preventing the need for long-term storage. The less time products spend in your warehouse enhances their cost-effectiveness. Aged inventory data gives information on how long a product has been on hand, so you can make a strategy to move it out the door.
This is especially advantageous for brands using third-party fulfillment or third-party logistics (3PL) warehouses. Both alternatives impose a hefty upcharge if your products are kept on hand for an excessively extended period.
Optimized Inventory Control
Monitoring your products’ supply, storage, administration, and distribution is the foundation of good inventory control. Techniques to avoid overselling, stockouts, and delays in your restocking schedule are frequently included in inventory control and warehouse management. Combining the above methods with aging inventory estimates can also easily optimize your inventory control strategy.
This is because an in-depth, intelligent aging study guarantees you always know exactly what you have on hand. These reports provide the data you need to increase your inventory turnover (i.e., less product expiration, spoilage, obsolescence, and other issues).
Reduced Excess Inventory
Products that have reached the end of their product life cycle but have yet to be sold constitute excess inventory. These goods have also exceeded their projected demand. Simply put, keeping excess inventory hurts your company’s bottom line. A product surplus not only indicates inefficient inventory control but will also negatively influence your income.
Fortunately, by keeping an eye on outdated inventory, your business may stop ordering the same non-selling items. You can create a plan to eliminate all of your dead stock. By doing this, you can introduce new products that will increase customer demand and your bottom line.
Maximized Cash Flow
Your income stream keeps your business afloat and allows you to buy other things. Maximizing your cash flow will always be a major business goal. There’s a good probability that your inventory management will encounter roadblocks and problems. When that happens, you won’t be able to invest in new products, especially if you’ve sunk in cash on SKUs with less demand.
Retailers may now precisely identify which products are raising higher carrying costs or holding fees as they go unsold owing to aging inventory calculations. From there, business owners may eliminate outdated inventory to ensure an uninterrupted revenue flow.
Optimizing Your Aged Inventory Report
You’ll need to implement several applications and technologies to make your inventory management strategy successful. You’ll also need to invest in thorough analytics and reporting. Finding the best inventory tools for your company will entail trial and error. Integrating inventory age has been known to help brands in many industries.
Quick and consistent action is essential to minimizing old inventory. When handled properly, getting rid of outdated stock can lead to prospects for greater sales and engaged & satisfied customers.
You can keep an eye on SKUs you have too much of or aren’t selling with inventory management KPIs like aging inventory. You’ll also avoid adding to your holding costs by buying unnecessary items. However, purchasing and warehouse management personnel must know about these developments.
With an aged inventory report, your purchasing department won’t accidentally place another order for that item number. With optimized reorder points and inventories, your warehouse has more space that can be utilized for new items. This sort of communication and transparency can do wonders for your supplier relationships.
Holding inventory audits regularly ensures that your stock records accurately reflect what is in your warehouse. This increases inventory accuracy and clarifies which stock items aren’t moving. Having complete product oversight leads to better inventory control.
By doing this, you can determine which SKUs are performing well and which are not. Then you can choose how to decrease or eliminate the low-demand inventory. For example, running a marketing event can raise interest in your aging goods.
Supply chain management relies heavily on inventory planning. This assists retailers in buying the right amount of inventory and deciding how frequently to place reorders. Inventory age can significantly influence inventory planning because it recognizes which products don’t need to be reordered. Inventory age gives your planning a stronger foundation. Your management has a clear roadmap to work from and eliminates much of the guesswork involved in this process.
Utilizing the knowledge and information you have from aged inventory reporting is the key to making data-driven sales decisions. With the correct data, you can prevent making arbitrary reductions in prices. Or order more inventory without knowing how much you currently have on hand. This is particularly useful for small enterprises just beginning their eCommerce journeys. Hasty inventory transactions can have significant long-term adverse effects on any business.
To summarize, maximizing an aged inventory report has a major impact on your business. A greater understanding of your stock opens the doors to more efficient inventory management. A product’s ROI may be determined by the main metrics highlighted in aged inventory reports about your oldest items’ condition and status.
ZhenHub has the tools that can help you get started with generating your first aged inventory report. Get real-time updates on stock movement and forecast product demand on our digital logistics platform. Jump-start your reporting capabilities when you sign up for free.