🎓 Definition
It is essentially a report, otherwise known as a Stock Aging report which provides key metrics on how quickly an inventory moves. A list of items on hand grouped by a number of different stock days segments, since the day those items have been purchased.
In the case of Appliance Products, it is a common practice to anticipate a Depreciation Process by Product Type based on the Stock Aging.
🧪 Example of Stock Aging
For instance, a specific TV Model has been purchased on 05th January and 20 pieces have been received for a value of 100,000, on 05th April only 5 pieces have been sold and 15 pieces remained in Stock, there are 15 pieces which are having a Stock Aging of 90 Days.
Retailer would have allocated a monthly Depreciation % for this TV to anticipate the loss of value of this TV as the Selling Price will need to be reduced and will be sold at a Discounted Selling Price.
To avoid a high impact on margin when the TV will be sold, Finance Team will apply every month a stock value depreciation percentage which will increase over time until the stock is sold.
If the stock is sold with a higher value than the depreciation value then the differential will have a positive impact on margin.
❓What is used for
Staying on top of the age of products sitting in stock is important. Therefore, it’s important to keep tabs on how much stock is sitting on the shelf or in Storage and for how long. This will give insight into which products customers are buying and not invest in products that will be sold slowly or will never sell.
The Stock Aging report provides businesses with insights, such as:
- Highlighting Slow-moving items
- Identifying Non-moving items
- Understanding the length of time products sit in stock
- Quantifying and anticipating stock depreciations for specific categories such as Appliances or Textile.
How is the monthly depreciation percentage determined for each product type, like the TV model mentioned in the example?
The monthly depreciation percentage for each product type is typically determined based on historical sales data, market trends, and the expected lifespan of the product. The Finance Team often collaborates with the Sales and Inventory Management teams to analyze these factors and set an appropriate depreciation rate. For example, for the TV model mentioned in the example, the Finance Team might consider factors such as the average time it takes to sell similar TVs, seasonal demand fluctuations, and any technological advancements that could affect the product's value over time.
Are there any industry-standard benchmarks or recommended thresholds for stock aging that businesses should aim to adhere to? For instance, when should a product be considered a slow-moving item or a non-moving item based on its stock aging?
While there may not be universally accepted industry-standard benchmarks, businesses often establish their own thresholds based on their specific industry, market dynamics, and historical sales data. Generally, a product can be considered a slow-moving item if it remains in stock for a period that exceeds the average sales cycle for similar products in the industry. Similarly, a product can be categorized as a non-moving item if it remains unsold beyond a predefined period, often determined by the business's inventory turnover rate goals. It's essential for businesses to regularly review and adjust these thresholds to align with changing market conditions and customer preferences.
How frequently should businesses review and update their Stock Aging reports to ensure accuracy and relevance in decision-making?
Businesses should aim to review and update their Stock Aging reports on a regular basis, ideally on a monthly or quarterly basis. This frequent review allows businesses to stay informed about the current status of their inventory, identify any emerging trends or patterns, and make timely adjustments to their inventory management strategies. Additionally, regular updates ensure that the data used for calculating depreciation percentages and identifying slow-moving or non-moving items remains accurate and relevant, thereby enabling more informed decision-making.