Over the years I’ve seen many companies, both manufacturers and distributors, with very low inventory turns, due in part to slow moving or obsolete inventory. Slow moving inventory can have many causes:
- Poor planning
- Poor quality
- Long set-up times
- Poor materials flow
- Unreliable processes
- Unreliable suppliers
- Inaccurate inventory
- Unresponsive information systems
However, the number one contributor to large quantities of slow moving or obsolete inventory is what I call Ramp Up/Ramp Down. This is the process of bringing new items into inventory and removing old ones. Many companies are pretty good at bringing in or developing new items, but pretty bad at getting rid of the old ones. It’s hard to get rid of old products because someone might want them some day.
I refer to that as “glacially slow moving inventory,” and one big danger of having a lot of it is that your banker will become concerned about the “quality” of your inventory – and loan you less and less for your working capital needs as a result.
It takes discipline and resolve to keep your inventory turning fast. Contact me to develop a strategy to reduce – or prevent – glacially slow moving inventory.
© 2014 – Rick Pay – All Rights Reserved