To be cost effective, companies must reduce or redistribute slow-selling products at least once a year
You're the distribution manager for a manufacturer of small repair parts. Your company has 40,000 SKUs stored in a shared warehouse. Yet more than 24,000 SKUs, or 60 percent of your total inventory, hasn't moved in six months. Marketing is pushing to retain the products for customers who may order them someday, finance is yelling about write-offs, and operations is feverishly working on a plan to reduce the number of SKUs.
"This is where we store our slow movers."
Sound familiar? Nearly all companies face the challenge of storing "slow-moving" inventory that's either too important or expensive to throw away. It's a dilemma that crosses all industries. Consumer product makers shelve older models of electronics and apparel as soon as new ones are introduced. Spare part manufacturers store items for the repair of obsolete equipment that is still in service. Pharmaceutical companies stock and distribute sales literature for drugs approved many years ago.
Finding efficient ways to manage slow-moving products is the key to saving time and money. Yet many companies continue to store this inventory in high-turn warehouses, assuming that space is free if the product doesn't move. In actuality, the total logistics cost of storing any item includes the expense of space, people and equipment. Thus, the cost of warehousing a rarely ordered spare part is about the same as a new computer, yet the computer is the only product with the potential to boost company revenues.
The best way to deal with slow-moving inventory is to analyze distribution data at least once a year, finalize a plan to either reduce SKUs or redistribute products, and stick to it. Ideally, top operations management, such as the Director of Distribution, should drive this process by reviewing the total logistics cost of retaining slow-moving items, and determining a suitable strategy to reduce these numbers. Solutions for managing slow-moving inventory can include the following:
Dedicating Private Warehouses to Slow Moving Products
Developing special warehousing facilities for seasonal, slow-moving items is becoming a popular strategy among food chains. During seasons when products become fast movers, food chains package and transport them in store-ready pallets to other distribution centers to join high-turnover items.
Customer "Fire Sales" and Employee Discounts
Offering products to customers or employees at discount prices is a good solution for consumer products companies trying to sell obsolete items such as older model televisions, appliances, computers and apparel.
Third-Party Warehousing
Many third-party providers offer inexpensive space specially catered to low-turn items. Like file storage houses, these facilities set prices according to inventory, enabling companies to store slow-moving products cost effectively.
For example, Kuehne + Nagel offers facilities that store and ship slow-moving inventory at inexpensive rates. It¡¯s an added value to customers that need a clean, safe space for items that simply aren't in regular demand. These facilities provide the same level of expertise and attention as Kuehne + Nagel¡¯s high-turn warehouses, but at a lower cost due to the turn rate of the inventory.
Charitable Donations
Companies can receive tax incentives by donating products to not-for-profit organizations such as churches, schools and community centers.
Inventory Resellers
Selling inventory to resellers that job lot products to discounters at a profit is a viable solution for organizations that do not have policies against marketing their items at discount stores. Internet auctions have allowed this process to become more efficient.
Disposal
While an option, throwing products away is often a company's last resort, since disposing certain items can involve expense and environmental concerns. Yet companies should always understand the total logistics cost of keeping the products before ruling out disposal.
Determining the best option for slow-moving inventory may take time. But in the end, the financial benefits of having an efficient distribution process for both high-turn products and slow movers is well worth the effort.
