Few things test your operations prowess like inventory aging: Part customer psychology and part warehouse logistics, the balance between keeping products in stock and moving off the shelves at a steady clip requires a data-driven strategy. To build it, you need insight into the speed of your slowest-moving items.
The quicker you turn over your inventory, the better off your business will be, which is why inventory aging is one of the key metrics (and a popular inventory control strategy) for retail brands.
Ahead, learn all about aging inventory—how to measure it, why it matters, and strategies for managing your stock in the future.
What is aged inventory?
Aged inventory refers to slow-moving products that either aren’t selling or have outlasted projected demand. This can result from several factors, like seasonal purchasing behavior, insufficient marketing, poor positioning, or excess inventory.
Regardless, the carrying costs of aged inventory ultimately lead to diminished gross margins: The longer the stock sits, the more expensive it becomes by preventing you from bringing in new products that generate cash flow.
What is an inventory aging report?
An inventory aging report, or stock aging report, is an at-a-glance financial assessment of sluggish stock-keeping units (SKUs), used to prevent them from turning into unsellable dead stock—obsolete inventory that hasn’t moved in a set period, be it 30 days, six months, or a year. It’s a simple document with powerful implications for your business.
An aged inventory report is foremost about visibility, the kind that leads to valuable insights about your overall inventory management. While some companies rely on bookkeepers to manually generate these reports at set intervals, many choose to implement inventory management software to keep an eye on their stock in real time and automate inventory control accordingly.
Why you need an inventory aging report: 3 reasons
By capturing the average age of remaining stock, inventory aging reports can:
1. Identify slow-moving inventory
Identifying slow-moving inventory is the primary purpose of an inventory aging report. Tracking the average life cycle of items in your product line-up makes it easier to see when a given inventory item isn’t performing and may require extra attention.
2. Make informed decisions about strategy
Slow-moving items resulting from overordering or mismanaged marketing don’t have to be a lost cause. 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.
3. Reduce inventory inefficiencies
Think of an inventory aging report as an early warning of potential issues. Noting products with a lower turnover rate allows for an investigation into why that’s the case; the solution might be an increased focus on quality maintenance, adjusted ordering and delivery schedules to prevent overstock, or signal a need to make inventory purchases from a different supplier.
How to calculate the age of your stock
To calculate the age of your stock, you need your average inventory cost and cost of goods sold (COGS). To find your average inventory cost (the current value of the inventory you’re looking to age), divide the annual cost of goods sold by your total ending inventory. Your COGS includes any associated costs of producing that inventory, like raw materials and labor, but excludes factors like marketing or overhead.
Here’s the inventory aging formula:
(Average inventory cost / Cost of goods sold) x 365 = average inventory age
A high average age means a product takes longer to sell, while a low average age reflects high turnover—and a need to restock accordingly. A “good” inventory age is generally considered 60 to 90 days from the receipt date, though this varies based on the shelf-life of the products, industry norms, and the average turnover rate.
Average inventory age is a similar metric to your inventory turnover ratio, with one key difference: your turnover ratio reflects how often products are sold and replaced in a given time period, while the inventory age tells you the average number of days it takes to sell a specific product. Both are important reflections of your inventory management strategy but aren’t interchangeable.
4 ways to manage and reduce aging inventory
Now that you know which SKUs aren’t moving as quickly as you’d like, it’s time to do something about it. Here are a few tips for getting stagnant products off your books and preventing more products from being stagnant in the future:
Discount the retail price
One way to incentivize purchases is to generously discount the item or include it in a limited-time bundle with some of your bestsellers. Many brands do this by running end-of-season sales to clear excess inventory before it becomes dead stock.
Communicate across teams
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 aged inventory. When everyone is on the same page, you can ensure that more slow-moving products aren’t ordered by mistake, the warehouse can properly plan around the soon-to-be freed-up shelf space, and marketing knows to spotlight certain items.
Refresh the product page
If you conduct sales online, take a look at your product detail page (PDP). Is it up to date? Is the language compelling enough to convert? Do the photos accurately capture the product’s appeal or intended use? Use this as an opportunity to freshen up website copy before directing more traffic to the page. If you conduct sales in-person, apply this methodology to your retail merchandising strategy to make sure your products have the right prominence to customers.
Tell a new story
Maybe your product hasn’t quite found its target audience, or maybe your current customers need to be reminded that your product exists. Either way, aging inventory is an opportunity to craft a new narrative or campaign that places certain products front and center.
Aged inventory FAQ
How do you control inventory aging?
There are several strategies to control inventory aging. Chief among them is the aged inventory report, a metric highlighting slow-moving products that require more attention to avoid holding costs and diminished profit margins.
Why is aging inventory important?
Aging inventory is important because it allows visibility into the performance of your product portfolio and enables you to make informed decisions that impact your bottom line. For brands that use a third-party logistics (3PL) partner, an aged inventory report is a critical way to improve storage cost efficiency and avoid fees associated with long-term storage.
How can you identify aged inventory in your stock?
Identifying those inventory items with a slow turnover rate results from dividing your average inventory cost by the cost of goods sold, then multiplying it by 365.
How often should I conduct an inventory audit to address aged inventory?
The goal of an inventory audit is to ensure that your inventory records accurately reflect what’s in stock. Depending on your business and how many SKUs you need to manage, this may be useful weekly, monthly, or quarterly.
It’s best practice to conduct an inventory aging analysis every year to compare current inventory reports against those from the previous period, granting you an evolving view of your inventory health.
