Reasons for Slow Inventory Turnover
Inventory turnover refers to the efficiency with which your company moves through raw materials or resale products. Generally, a high inventory turnover is favorable because that means you are selling products quickly, which generates revenue and cash flow. Slow inventory turnover is normally problematic, though your inventory turnover can be low for other reasons besides low sales.
Merchandising is presenting products for sale in store in an aesthetically pleasing way that attracts customers and allows for ease of access. If you are turning inventory over slowly, you may want to review your company plan-o-grams to see if you need to shift inventory around. If you have toys that are moving slowly, for instance, you may have them located to high on shelves, making it difficult for kids to get to them. Having high value inventory blocked by racks or other displays is another common problem.
Your slow turnover may actually be a result of excess inventory buying. This can result from poor planning or overestimated customer demand. Excess inventory is costly to manage, but related to slow turnover, it is more difficult to sell through. If demand wanes before you get through all of the products, you either have to discount prices or throw out expired or perished items. This contributes to a slow turnover ratio.
You might simply be providing items for sale that customers don't want to buy. This can result from a lack of market research or a poor awareness of why customers come to your business. As a business-to-business technology solutions provider, for example, you may experience slow turnover trying to sell obsolete technology to cutting edge buyers who need the most current solutions. You need to rethink your merchandising strategies and do more research on the market.
Poor marketing and sales efforts can also restrict inventory turnover. Marketing is necessary to make customers aware of your products and to motivate purchase behavior. In higher-end or more complex businesses, you may need assertive salespeople who consult with customers and make purchase recommendations. Without these important communication and selling strategies, your products may sit on the shelf because customers aren't aware of the benefits they can get from them.