Leak 20 · Inventory & Working Capital - Slow-moving inventory
Stock that turns once every three years ties up cash, takes space, and eventually becomes dead. The ERP already knows which items. Nobody has asked it.
Diagnostic note. Symptoms, required records, an initial check, and possible fixes. This shorter note does not include a full worked example.
What is it?
Slow stock accumulates from optimistic buys, discontinued customer programs, quantity-break rounding, and reorder points that were never lowered when demand fell. Each item is small. The total is often 15 to 30 percent of inventory value, and it is the part that is quietly turning into dead stock.
- Family
- Inventory & Working Capital
- Primary owner
- Inventory Manager / Purchasing Manager
- Secondary owners
- CFO, Branch Managers
- Primary impact
- Working capital
- Typical data source
- ERP inventory valuation, item demand history
- Detection difficulty
- 30-day measurability
Ask yourself
How much inventory at cost has had zero demand in the last 12 months?
Yes, partially, no, or don’t know. “Don’t know” is the most useful answer, because it points at the test below.
What does it look like?
Warning signs. None of these proves the leak exists. They tell you where to look.
- Inventory turns declining while sales are flat.
- A large share of SKUs with less than one turn a year.
- Reorder points that have not been reviewed in years.
- Warehouse space problems while fast movers run out.
What data do I need?
The minimum viable set. Most of it is already in your ERP.
| Field |
|---|
| Item, on-hand quantity, unit cost, extended value |
| Units sold in the last 12 and 24 months |
| Date of last sale and last receipt |
| Reorder point and quantity |
The initial check
Start with a small sample. Gathering the exports, agreements, or observations is separate from running the check; agree that work with the person who owns the records.
- 1Export inventory value by item with units sold in the last 12 months.
- 2Calculate months of supply for each item: on hand ÷ (12-month sales ÷ 12).
- 3Sum the value of items with more than 24 months of supply, and the value with no sales at all.
Months of supply = on-hand quantity ÷ average monthly demand; excess value = Σ extended cost where months of supply > 24
Then ask one question: Of the items with more than two years of supply, how many still have an active reorder point?
How much could it be costing us?
A conservative range, not a headline. The goal is a number management can trust enough to investigate.
Excess inventory value × annual carrying cost rate (typically 20–30%) + expected write-down on the share that becomes dead
Common root causes
Fixes fall into three layers. Not every problem needs software, and almost none needs AI first.
- Process
- No regular review of slow items, and no policy on when to stop reordering, return, or liquidate.
- Data
- Reorder points and quantities are static, not driven by current demand.
- Technology
- Replenishment settings are maintained by hand, so they do not respond to demand changes.
What should we do?
Start with the simplest intervention that could solve it. Move down the list only if the one above is not enough.
Level 1
Visibility
A monthly slow-stock report by value, with months of supply and last sale date.
Level 2
Policy
Reorder points reviewed quarterly against demand, with a rule that items over a threshold stop reordering.
Level 3
Disposition
A standing process for returns, transfers, promotions, and liquidation of items past a defined age.
Where AI helps
- Finding customers or branches likely to buy specific slow items, and drafting targeted offers.
Where AI probably doesn’t
Identifying slow stock is a report. Preventing it is a replenishment setting. Start with both.
Before you call it a leak
- Some slow items are strategic: service parts for key accounts, or items that sell rarely but at high margin. Tag them before acting.
- Seasonal items look slow at the wrong time of year. Use 24 months of history.
Think this might be happening in your business?
Turn the finding into a next step.
If the numbers say there is something there, send us what you found and we will help you decide whether it is worth a full investigation. No transaction files needed for that conversation.
Related leaks
- Leak 21 · InventoryDead and obsolete inventoryInventory with no demand and no prospect of demand. It is on the balance sheet at cost, and it will never be worth that again.
- Leak 22 · InventoryExcess safety stockSafety stock set once, by feel, for every item. It protects against a stockout that stopped being likely years ago and ties up cash doing it.
- Leak 16 · SuppliersUnclaimed vendor returnsMany suppliers allow an annual return of slow stock, often a percentage of purchases. The window passes. The stock stays on the shelf.
- Leak 24 · InventoryInventory duplicated across branchesFive branches each hold three months of a slow item. The company holds fifteen months. Each branch manager is being sensible.
Let’s start with one thing.
What would better performance look like?
Bring a result you want to improve, a symptom, or a workflow you already understand. You do not need to know the bottleneck yet. We’ll help choose what to investigate first.
No transaction files needed for the first conversation.