Some suppliers allow brands to return excess stock within specific periods. Similarly, Dollar Shave Club sends subscription customers, prompting them to “toss more in” before their refill ships. This cross-selling technique allows the razor brand to promote less-popular items as package add-ons. And hopefully, eliminate some slow-moving SKUs by marketing them to already loyal customers.

  1. Aged inventory is not an overnight occurrence however, any surplus of inventory stock is both costing you money and restricting your cashflow.
  2. When diving into an ecommerce store’s financials, aged inventory can help guide where further analysis is needed to understand why certain products aren’t selling as quickly as others.
  3. Generally, faster turnover is good, since the business can generate high sales while investing in relatively modest amounts of inventory.
  4. But to have effective inventory management you need to have real-time or near-real-time data (which also supports overall S&OP) supported with dashboards and reports.

Being aware of the gaps creates an opportunity to fine-tune your response to customer demand and tailor marketing strategies to specific SKUs. That might mean bundling these items with more popular sellers, promoting them as add-ons at check-out, or running a promotional sale. As an example, the age of inventory is very important in the food industry – especially for perishable food items that can expire, such as fresh produce, meat, and dairy. The average age of inventory is an important metric for managers to use as well.

The Best 3PL Providers for Small Businesses

Think of an inventory aging report as an early warning of potential issues. Beyond being merely unsold stock, aged inventory intertwines with several critical areas of a business, from cash flow dynamics to storage costs and even product relevance over time. The way businesses handle their inventory can either set them up for success or pave a path to financial strain. Different strategies apply to various types of your stock not only in terms of the products but also the time your stock spends on the shelves. This aging inventory requires careful examination and efficient management.

How to calculate average inventory age for your business?

But to have effective inventory management you need to have real-time or near-real-time data (which also supports overall S&OP) supported with dashboards and reports. If you find yourself with an abundance of aging inventory, one way to manage this concern is by dramatically discounting the items that fall into the ‘aged’ category. Alternatively, you can upsell or bundle those products, to hopefully move them out the door once and for all. Most often, the average age of inventory is calculated over the period of one calendar year.

By doing this, you can introduce new products that will increase customer demand and your bottom line. Inventory control issues can then be identified using the aged inventory report and improvements made as a result of these metrics. Ultimately increasing stock valuations, improving the businesses cash flow and the ability of the business to service existing or new finance agreements. The purpose of this is to reflect the different shelf lives of different products. With a comprehensive retail inventory strategy, you get a more accurate inventory age benchmark.

The average age of inventory is typically calculated over the course of one year (365 days). If you are looking for expert advice to optimize, improve, or start your inventory management, our experts can guide you. Cost of goods sold refers to the price of producing the goods sold by a brand or business. The COGS amount includes expenses directly related to production (like raw materials and cost of labor), but it excludes a range of indirect expenses (like overhead and marketing).

How to Calculate Inventory Age: Combine with Turns for a Holistic View

In a previous video , I explained how you can calculate inventory turns to determine which items or components move quickly through your inventory storage and which ones may linger. As an example, let’s say you received 50 units on September 1 and 50 units on October 1. That means 25 units from the September 1 receiving are still in stock and have an age of 45 days. There are 50 units in stock from the October 1 receiving and those have aged only 15 days. FIFO management of your stock means that 25 units from the September 1 order were used to fulfill customer orders before stock that was received later.

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. Inventory management software performs all the functions above with an added bonus of automation. With it, you can track all ins and outs and extract the inventory aging reports in real-time.

When not writing about inventory management, you can find her eating her way through Auckland. Aged inventory generally refers to inventory stock that has been held for longer than six months usually due to low consumption or slow sales. Aged inventory is not an overnight occurrence however, any surplus of inventory stock is both costing you money and restricting your cashflow. The management of Company A may want to consider decreasing prices of products or creating discounts and promotions to sell their inventory quicker.

A thoughtful analysis of your inventory can help you determine what’s in stock and if it will sell before the expiration date. It doesn’t have to reach this point/ Below are three strategic ways to minimize financial losses that stem from inventory aging. For instance, Inventoro automatically gives you a lowdown of your aging inventory once you connect it to your system. Having access to this kind of information allows you to make informed decisions when it comes to what and how many products to purchase. But if you are looking for a bird’s eye view this kind of calculation is not feasible nor practical in nature. Another simple way to calculate is by understanding the average inventory values and COGS.

That means demand is high, and you might want to order a bit more safety stock to avoid a stockout situation. So, you don’t want to order a ton more of that item, only for it to turn into dead stock. Luckily, ecommerce brands can track aging inventory and take proactive measures before this inventory wrecks your margins. Plus, with the right processes, you can even avoid the issue altogether. In short, it is best to view the average age of inventory in conjunction with the profit margins being earned by a business. Inventory aging is a problem that is often inevitable, especially for big companies that have many warehouses and large proportions of inventory.

So, top retail brands use inventory management software or ops optimization tools like Cogsy to automatically generate aged inventory reports in real-time. For example, if a certain product isn’t being sold quickly enough, that opens the door for loss leader strategies or bundling promotions. By associating a slower-selling product with one that is popular, the inventory challenge can be addressed while potentially offering a higher perceived value to the customers. It’s important to compare the costs of holding on to inventory against the discounts that might have to be offered to move the product.

Aging inventory and storage costs

Thus, you may want to mark it down and offer it at a lower price than the full retail price. If you are successful enough, you may be able to break even by selling it at the same price you bought it with. However, in most of the cases, aged inventory may result in a loss for the suppliers.

It can also help reduce your cost of storing inventory by providing information on what inventory to buy. Depending on your accounting software, you can either generate a report automatically or retrieve the data and compile the report manually. Leveraging the inventory aging formula and/or an inventory aging report is vital to your business’s health and wealth. If they all build up on the assembly line, they never get to the end of the line and choke the process in the meantime.

By tracking the movement and storage of items, brands can find ways to decrease the inventory holding period & curb losses resulting from stale or dead stock. Fortunately, by paying attention to aged inventory, your company can stop reordering the same products that don’t sell — and instead, develop an approach for eliminating all your dead stock. Cross-selling invites customers to buy complementary products based on the items they’ve looked at or put in their cart. Understanding the average age of your inventory helps business owners identify low-performing SKUs, better predict customer demand, and lose less capital to the wrong products.

aged inventory reporting provides details on how long products have been in stock, so you can craft a plan to get them out the door. Inventory turnover ratio is an expression of how often a company sold and replaced its inventory during an established period of time (like over the course of a year, for example). Calculating inventory turnover can help ecommerce businesses make more informed decisions on pricing, marketing, manufacturing, and purchasing new inventory items.

Generally, a faster inventory turnover (low average age of inventory) means that a company is efficiently selling inventory. Average inventory cost refers to the value of a business’s inventory over a set period. Maximizing your cashflow will always be a priority, because it’s your revenue stream that’s really keeping your company afloat (and that’s the money you use to purchase more products).