The average age of inventory is calculated by taking the average inventory balance and dividing it by the cost of goods sold (COGS) for the period and then multiplying it by 365 days. Implementing accurate demand forecasting is key to preventing excess inventory and, consequently, aging stock. Shopify POS comes with tools to help you manage warehouse and store inventory in one place. Forecast demand, set low stock alerts, create purchase orders, know which items are selling or sitting on shelves, count inventory, and more.

1. An inventory aging report, also known as an aged stock report, is a strategic tool that provides a snapshot of the age distribution of products in stock.
2. Make slight changes to a product’s photos and description copy to prompt sales.
3. It is very likely that your inventory has a certain usage limit in terms of time.
4. Excess inventory relates to goods that have reached the end of their product life cycle, but have yet to be sold (and now exceed their projected demand).
5. Inventory aging describes a scenario in which your inventory doesn’t sell quickly or sells at a lower price.

However, a company could employ a strategy of maintaining higher levels of inventory for discounts or long-term planning efforts. While the metric can be used as a measure of efficiency, it should be confirmed with other measures of efficiency, such aged inventory as gross profit margin, before making any conclusions. The average age of inventory is the average number of days it takes for a firm to sell off inventory. The average age of inventory is also referred to as days’ sales in inventory (DSI).

Inventory Aging: Definition & How to Calculate

On February 11, 2021, we received gaskets, so we have gaskets that are 88 days old. We continue down the table until all 116,000 gaskets have been assigned an age. Unless these gaskets are highly specialized, they are fairly cheap, so it might be reasonably harmless to carry a lot of them in your inventory. When we take a look at the recommended shelf life of rubber though, we see that the shelf life of a rubber gasket depends on the type of rubber used. If a large portion of the current inventory is gathering dust, it becomes much harder to plan out when additional purchases need to be made and which products need to ramp up or slow down. Decisions that would be beneficial to be made sooner might have to be delayed until SKU performance is better understood across the board.

How often should you report aging inventory?

While some companies may choose to assess this figure more or less frequently, one age analysis per year is fairly standard among modern ecommerce merchants. That way, your purchasing team doesn’t unknowingly reorder more of that item number. And your warehouse management team knows that more inventory isn’t on its way, and they can use that space for other products (this small gesture can seriously improve your fulfillment relationships). Knowing which of your items are slow-moving or unsellable, you’re empowered to make informed decisions to increase demand for those items (and subsequently increase your revenue).

If you arrange the days’ range in columns (e.g., 0-30, 31-60, 61-90), list down all product items in rows, and add their purchasing information, you’ll get a basic aging report. Now that you’re more familiar with what an inventory aging report is and why it’s important, you should take the necessary steps to generate one for your business. It’ll be useful for monitoring your company’s financial health and allowing you to make informed decisions about what inventory to purchase in the future. One of the best things you can do for warehouse management is to communicate early and often with your purchasing, marketing, and fulfillment teams about https://1investing.in/. Additionally, the average age of inventory can influence decisions on creating marketing strategies, such as offering discounts and promotions, selling aging inventory, and increasing cash flow.

To help your inventory management strategy excel, you’ll need to bring in a variety of software and technologies, in addition to comprehensive analytics and reporting. While trial and error will inevitably be involved in finding the right inventory tools for your business, integrating inventory age has been known to benefit brands across all industries. Excess inventory relates to goods that have reached the end of their product life cycle, but have yet to be sold (and now exceed their projected demand).

Optimize your inventory control strategy

Because making something off these products is better than not making anything at all – especially when the longer these items sit unsold, the more expensive they become. Alongside with the options available to handle inventory aging, there are multiple adverse consequences you might face. Keep reading to discover more benefits you can achieve by using eSwap to deal with inventory aging.

Top 5 eCommerce Analytics Tools to Check Out Now!

This means looking at aging reports and realizing which products are worth keeping in stock for their potential return on investment. A shorter time frame may be even better, but it also means less profit for the business, and orders of dead stock would need to come before new products are ordered. When it comes to data-driven decisions, the best thing you can do is use inventory reporting. With this information at your disposal, you’ll know when an item needs to be marked down or reordered without overstocking on a product that might not sell. Inventory management can be improved by using various software and technologies and analytics.

The online furniture retailer sells thousands of SKUs — many of which are seasonal. So, as soon as product demand drops, the tool adjusts your inventory plan accordingly. From there, you can decide how to reduce (or eliminate) the low-demand inventory – like by hosting a marketing event to increase demand for your product. But the brand won’t know until they identify that the inventory is aging longer than other SKUs. Since this problem didn’t start overnight, it’s not going to resolve overnight either.

However, there are both long term steps and more immediate steps you can take to get your aged inventory under control. This leaves 91,000 gaskets in inventory where we have not yet assigned an age, so let’s move down to the next purchase date. Inventory age is not something that a lot of inventory planners consider but depending on the types of items you hold in inventory, this can be an important topic.

Assuming you manage your stock using a first in, first out (FIFO) strategy, the items received longest ago will the first ones to fulfill customer orders. In order to compute the age of a product, go through your historical stock backwards, subtracting stock intakes from the current stock until you reach zero. Let’s examine what inventory aging is, how you can monitor it, and consequences of ignoring it. However, what happens when some of your inventory languishes in storage? Merchandise is hard to move, warehouse fees pile up, and profit margins shrink instead of growing.

You can also have a massive clear-out sales event with inventory over a year old can help move stock quickly. You might not recover the hard costs, but you’ll gain it back with more inventory real estate space left in the warehouse. If there are lingering items from your big sale, consider donating it to a charity. This is the case when a business is presenting customers with a wide range of options and a promise to always have products in stock, which results in a large inventory investment.

Maximize your cashflow

This means you have more fresh stock than aged stock, and most of your stock is selling at full price or higher margins. In the sample report above, you’ll see that all of the stock is in the 0 to 30 days age buckets. You can also look at the buckets at a higher age, see how much they’re contributing to your stock mix, and use this knowledge to manage your aging inventory. The purpose of an inventory aging report is to help retail business owners identify slow-moving SKUs, which can inform strategies to increase ITR and reduce inventory aging.