What is Inventory Aging Report & How to Calculate It

Kumusta, lahat! Are you here because want to learn about an inventory aging report and what’s so good about it? Then, you came to the right place.

Fundamentally, inventory issues are not new to Filipino businesses. When it comes to inventory age, have you ever experienced this kind of problem: Unused stock often piles up in warehouses. As a result of not being sold, these items become outdated and unusable. Consequently, your business can suffer huge losses.

For example, if you are a food manufacturer, isn’t this a nightmare? A study revealed that the Philippines faces a significant issue with food waste, with 2,000 tons of items being thrown away every day. Kaya naman, uso ang paggamit ng inventory aging report sa mga negosyong Pilipino.

Based on so many problems caused by bad inventory management, this article will show you how important an inventory aging report is and the easiest way to do it from your home without so many steps.

What is an Inventory Aging Report?

An inventory aging report is a document that provides detailed information on how long items have been held in stock. This system categorizes inventory based on how long each item has been in the warehouse and often divides it into time brackets (e.g., 0-30 days, 31-60 days, 61-90 days, etc.).

This report helps companies identify slow-moving stock or outdated stock, so they can take actions, such as offering discounts or adjusting purchasing strategies to optimize inventory levels and reduce storage costs.

Furthermore, an inventory aging report supports businesses in maintaining optimal stock levels by providing insights into product demand trends. Regularly analyzing this aged report enables companies to adjust their inventory strategies, preventing overstocking or understocking issues.

Why Inventory Aging Reports Matter for Your Business

Inventory aging reports offer multiple benefits that can greatly enhance your business operations. Tuklasin ang ilan sa mga pangunahing benepisyo nito sa ibaba:

• Identify slow-moving inventory: The report highlights items that are not selling well, allowing you to take action, such as offering discounts or promotions.
• Sales and inventory mismatch: It reveals any gaps between your sales data and inventory, helping to pinpoint inefficiencies.
• Manage dead stock: The report aids in strategizing how to handle dead stock through bundling, clearance sales, or special promotions.
• Reduce carrying and overhead costs: By identifying excess stock, you can lower storage expenses and free up capital for other opportunities.
• Improve cash flow: Aging inventory can tie up liquidity, and reducing it allows for better financial flexibility and higher margins.

How to Calculate Aging Inventory

Understanding how to calculate aging inventory can help streamline stock management and improve business efficiency. Here are the keys to an inventory aging report calculation for creating a good inventory report:

• Average inventory cost: This reflects the value of your inventory over a period, helping balance stock levels during seasonal changes. Formula: Average inventory cost = annual COGS / total ending inventory.
• Cost of Goods Sold (COGS): This represents the total cost of producing goods sold, including direct and indirect costs. Formula: COGS = (beginning inventory + purchases) – ending inventory.
• Inventory Turnover Ratio (ITR): The ITR indicates how often inventory is sold and replaced in a year. Formula: ITR = COGS / average inventory value.
• Average inventory age: This measures how long it takes to sell inventory. Formula: Average inventory age = (average inventory cost / COGS) x 365.

Inventory Aging Report Example or Calculation

Suppose your electronics store has an average inventory cost of ₱10,000,000, and your COGS is ₱30,000,000. Using the inventory aging report example, your average inventory age would be:

Average inventory age = (₱10,000,000 / ₱30,000,000) x 365 = approximately 122 days.

5 Key Performance Indicators for Inventory Aging

Tracking the right KPIs is critical to managing inventory aging effectively. Mahalaga ang pagsubaybay ng tamang KPIs para sa epektibong pamamahala ng inventory aging. Here are five essential KPIs:

• Inventory turnover ratio: This measures how frequently inventory is sold and replaced, indicating efficient inventory management.
• Percentage of inventory aging: This shows the portion of your stock that has been sitting for too long.
• Carrying costs: These include storage, insurance, and employee expenses, which should be monitored to avoid excessive costs.
• Percentage of slow-moving inventory: This metric helps track items that are selling slower than expected.
• Inventory carrying cost as a percentage of revenue: This KPI helps assess whether holding costs align with revenue generation.

Tips for Reducing Aging Inventory

To ensure that your business doesn’t suffer from stockpiled, unsold items, follow these tips for managing aged report:

• Accurate demand forecasting: Use sales data and market trends to predict future demand accurately.
• Strategic inventory planning: Align your inventory strategy with sales goals and market demand to prevent overstocking.
• Adjust pricing strategies: Regularly review and adjust your prices to move older stock faster.
• Enhance warehouse organization: Improve warehouse management to facilitate the movement of older stock.
• Invest in automation: Use inventory automation tools like HashMicro’s inventory management system to optimize stock levels.

Simplify Inventory Aging Reports with HashMicro

Gusto mo bang malaman kung paano madaling maghanda ng ulat sa pagtanda ng imbentaryo, kahit habang umiinom ng mainit na tsaa sa bahay? Tingnan ang tip na ito.

These days, HashMicro’s inventory management system is a popular choice among Filipino businesses to streamline their inventory aging report. With more than 1750 customers all over Southeast Asia, HashMicro offers big deals for companies looking for efficient software.

HashMicro dares to offer promising and highly profitable options for businesses in the Philippines. With free demo options, free user add-ons at no extra cost, extensive customization offers, and more, this vendor is hard to resist.

Some of its key benefits that help you to manage an inventory aging report are:

• Stock forecasting: A system that analyzes historical sales data, seasonal trends, and other factors to predict future demand for goods.
• Fast and slow-moving stock analysis: Helps identify products with high or low sales in the warehouse, enabling strategies like prioritizing purchases, offering promotions, or removing unsold items.
• Stock optimizer per warehouse: Maximize overall warehouse space usage and improve operational efficiency in stock management.
• Quality control management: Set and maintain quality standards for each product in the warehouse by scheduling inspections, checking goods, and identifying defects.

Conclusion

In conclusion, an inventory aging report is a vital tool for managing stock levels, reducing costs, and improving overall business efficiency. By providing insights into slow-moving and aging inventory, it allows companies to make informed decisions on stock management, pricing strategies, and demand forecasting.

Utilizing tools like HashMicro’s cloud inventory management system further simplifies this process, offering businesses in the Philippines a streamlined approach to optimizing stock levels and enhancing profitability. With its free demo, discover the best way to manage your inventory aging report from anywhere and anytime.

FAQ About Inventory Aging

• How do you write an aging report?

  To create an aging report, review all unpaid invoices, categorize them by aging periods (e.g., 0-30 days, 31-60 days), and segment customers based on overdue amounts and days outstanding to compile the final report.

• What are the 4 types of inventory?

  The four categories of inventory include raw materials, work-in-progress (WIP), finished products, and maintenance, repair, and overhaul (MRO) inventory.

• How to classify inventory?

  In this analysis, inventory items are divided into three groups: Category A consists of 20% of the items that account for 80% of sales. Category B contains 30% of the items contributing 15% to sales. Category C includes the remaining 50% of items, contributing only 5% to sales.