What is ageing inventory?

Ageing inventory is stock that has remained in inventory beyond a defined period without being sold or consumed at the expected rate.

The appropriate age threshold depends on the business. A fashion retailer may consider a product old after a season, while an industrial spare part may legitimately remain in stock much longer.

Rather than adopting one universal definition, businesses should establish ageing bands appropriate to their products.

The important question is not simply how old the inventory is. It is whether its age is consistent with the expected demand and lifecycle of the product.

Why ageing inventory matters

Old inventory ties up cash that could otherwise be used to purchase faster-moving products, fund expansion or support day-to-day operations.

It can also create additional costs through warehousing, handling, insurance, deterioration, markdowns and eventual write-offs.

More importantly, high inventory levels can create a false impression of availability. A company may have substantial inventory overall while still experiencing stockouts of the products customers actually want.

What should businesses do about ageing stock?

The first step is visibility.

Create a recurring inventory-ageing report and assign responsibility for reviewing it. Then determine the appropriate action for each significant item.

Possible actions include reducing future purchases, transferring inventory between locations, changing replenishment parameters, bundling products, running targeted promotions, returning stock to suppliers where possible, or liquidating genuinely obsolete inventory.

But clearing old stock only solves the symptom.

Management should also ask why the excess inventory was created.

Was the forecast too optimistic? Was the initial order too large? Did demand change? Was replenishment allowed to continue after sales slowed? Were purchasing decisions influenced by minimum-order quantities or supplier discounts?

Fixing those causes is what prevents the problem from returning.

How healthy is your ageing inventory?

Knowing the total value of inventory is not enough. Businesses need to understand its age, movement and relationship with demand.