How To Identify Fast-Moving and Slow-Moving Stock
For a business to be successful in the retail industry, having a constant cash flow is inevitable. This is possible only with a constant flow of inventory stock. Since the movement of inventory stock plays a major role in the success or downfall of a retail business, every retailer must closely monitor and manage their stock movement. Read on to find out what fast-moving and slow-moving stocks are, how to identify such stocks, and how the stock movement impacts the business.
What are fast-moving and slow-moving stocks?
Fast-moving stock is merchandise that sells within a couple of days and does not hold inventory storage space for long. On the other hand, slow-moving stock is that merchandise which simply stays locked up in the store’s space and has a really low sales rate. It generally includes the inventories which are greater than three months old.
For instance, in a retail outlet of apparels, sundresses would be fast-moving stock, whereas, woolen pullovers would be slow-moving stock during summer months. On the flip side, woolen garments would be a hit during the winter months and get sold out within a few days.
How to identify slow-moving stock?
Below are three common ways to identify slow-moving products:
1. Average days to sell the inventory
The time that a retailer takes to buy inventory and turn it into a sale is known as the average days to sell the inventory. This metric is important for every retailer to understand which products are fast-moving, and which are slow-moving. With this knowledge, retailers can make better decisions such as placing purchase orders, merchandising, finalizing items that need to be restocked, and the like.
A product that has a lower number of average days to sell the inventory is a fast-moving stock, whereas, a product that has a high number of average days is a slow-moving stock.
For optimizing the use of this metric, retailers must fix a particular date before which the inventory should be sold, which may also be based on the market trends, quality, and quantity of the products.
2. Holding costs
The costs incurred for storing and maintaining an inventory are known as holding costs. These include real estate costs such as rents and bills, storage costs, insurance premiums, maintenance charges, staffing and equipment costs, and the like. For instance, a forklift truck used to move the stock in a warehouse is a holding cost.
These costs seem to be negligible at first, and thus, are overlooked often. However, these costs could have a negative impact on a retail business in the long run. Thus, these costs need to be considered while deciding on a suitable business model for efficient inventory management.
Products that have high holding costs are generally slow-moving stocks, and those that have low holding costs belong to the fast-moving stock.
3. Inventory Turnover
The number of times an inventory is sold and replaced in a fixed time period is known as the inventory turnover. Evaluating inventory turnover helps retailers in understanding the rate at which a product gets sold out.
A high inventory turnover rate indicates that the product is sold out as quickly as it is acquired. On the contrary, a low turnover rate indicates that the particular product is much slower to move off the shelves.
With the help of this metric, businesses can identify the merchandise that is resulting in low profits and operational inefficiencies.
How does the movement of the stock impact the business?
Cash flow is very essential for any retail business to run smoothly. A large sum of the capital, resources, and manpower are required for maintaining slow-moving stocks. Moreover, these stocks occupy a huge storage space, until they are sold out. Consequently, retailers are unable to reinvesting these valuable resources in other aspects of the business for further growth. This is how the movement of stock profoundly impacts the business.
Retailers need to focus on identifying slow-moving and fast-moving stocks. Using a retail software solution like Ginesys would help retailers in tracking inventory movement in real time and tracking these metrics in order to ensure that they can make informed decisions in acquiring products that help in the growth of the business