Unproductive inventory is the dollar value (quantity on hand multiplied by average cost) of inventory that has not sold in over two years and with over two years of supply, divided by total inventory value. SKU-level detail can be found in your MEGA Report, Obsolete and Overstock tabs.
Your unproductive metric is made up of two separate components: Obsolete - SKUs not sold in over two years, and Overstock - SKUs with over two years of supply.
Unproductive inventory is an inevitable part of retail as inventory becomes outdated, residue builds from sale bills, and when customers don't buy exactly the quantity we anticipated when that two-pallet deal shows up. This inventory is expensive to keep around because it absorbs labor, shelf space, and investment. Because of this, it's critical for a store to have an ongoing process to manage its unproductive inventory; it is Level 0 because it's such a foundational retail process. Stores with an ongoing unproductive management process can take more inventory risks (deepening and adding new items) because if an item doesn't sell as anticipated then it will systematically be churned out and converted back into cash to be used for the next investment.
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Traditionally, obsolete SKUs have been called "X-items"--items with no sales history for ONE year--receiving a popularity code of "X" in our Eagle systems. Conventional wisdom has been to treat these items as obsolete. However, SKUs that sell once every two years actually contribute significant annual gross profit ($35,000 average) and many times, having these items on hand is good for store image and customer retention. But, when a SKU hasn't sold for over two years then its probability of selling again diminishes to where it makes sense to start closing it out.
Steps to Improve Your Unproductive Inventory:
- For Obsolete inventory, see Mango's Closeout Management system.
- For Overstock inventory, see MEGA Report Overstock tab help.