Getting rid of SMI
Most online sellers encounter this issue at least once in their career, it’s something extremely difficult to avoid. Slow moving inventory, or SMI, is defined as stock keeping units (SKUs) that have not been shipped in a certain amount of time, such as 90 or 180 days, and merchandise that has a low turn rate relative to the quantity available in stock. Slow moving inventory varies from seller to seller and can also vary from item to item.
Selling online is as competitive as Champions League football, a continuous race between players to grow and get as much profit as possible, by selling as many products as possible. You should always keep an eye open on your merchandise, regardless of its type, simply because inventory is strongly connected to your business and exemplary management is a key growth strategy.
If you’re about to run an internal audit on your inventory, you should try to define what a slow mover is – based on your merchandise and thus what constitutes little customer demand and how long of a time stamp justifies labeling a product as a slow mover.
The three main specific ways that can be used to define slow-moving inventory are overstocked items, stock turns and the frequency of shipment.
We spoke before about overstocking so we won’t stress that much on the subject, but we should focus more on the slow-moving stock. Having less than 6 months of demand for any given item in your stock inventory over a period of 12 months can be one way to define slow-moving inventory. If you think about it, really, it’s actually the definition of overstocking, without considering the frequency of shipment.
If you run a complex online business, with many types of products in your stock, a higher stock turn ratio is generally better, but it’s important to account for order quantity. So, when ordering new inventory, as the quantity increases, the cost per unit generally decreases. When ordering in large quantities, however, it will have the effect of slowing stock turns.
That is why it’s so important to account for “per unit purchasing costs” when using stock turns to define slow moving inventory, and it’s unreasonable to expect high stock turns when ordering in large quantities to minimize your “per unit cost”.
Checking the frequency of shipment for a particular product is key in determining slow-moving inventory. For instance, if you ship zero items of a particular stock keeping unit (SKU) over a certain period of time, such as 90 or 120 days, that is considered slow moving.
The ratio of shipped items to days may vary from business to business and from product to product. It is up to the seller to set the thresholds for that, but by looking at the frequency of shipment, it allows them to truly identify inventory that is slow-moving, as opposed to inventory that may simply be overstocked or which turns slow due to large order quantities.
If you go through this and find that you have SMI, we advise you to start the correct procedures for monitoring it and then figuring out what to do with it. If you’re experiencing low turnover rate you could be ordering too much of a product, resulting in slow-moving inventory and operational inefficiencies.
According to Wasp Barcode, 46% of small and medium-sized business either don’t track inventory or use a manual method, which is not at all a comprehensive inventory system and may lead to errors which in turn affect profit margins.
Using Nventree as your stock control and order management tool will shed light on your stock, by updating it automatically and syncing it to your eBay, Amazon, Rakuten accounts and also on some of the most popular shopping carts, such as Magento, WooCommerce, Shopify, etc.
The app is designed to fit the needs of small businesses all the way up to the Enterprise level so you should give us a call on 0121 285 1050, or go to Live Chat to talk to one of our operators anytime from Monday to Friday, 9am to 5pm, UK time. We will find the best way to help you manage your stock!