Inventory Aging Analysis
Inventory Aging Analysis - User Guide
1. Introduction ⏳
The Inventory Aging Analysis report is a strategic financial tool used to identify slow-moving, non-moving, or obsolete stock. By calculating how long inventory has been sitting in the warehouse, the system helps management reduce capital blockage and prevent material degradation.
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Purpose of this Report:
- Identify Dead Stock: Locate materials that haven’t moved in 6+ months or a year.
- Capital Optimization: Calculate the financial value of idle inventory to improve cash flow.
- FIFO Audit: Verify if the “First-In-First-Out” principle is being followed in physical material handling.
- Risk Management: Mitigate the risk of inventory write-offs due to expiration or obsolescence.
This report is essential for Finance Controllers, Purchase Managers, and Plant Heads.
2. Aging Methodology 🧪
The system uses a Backward-FIFO Allocation logic:
- It takes the current Closing Stock of an item.
- It looks at the most recent Receipt Transactions (GRNs for Raw Materials or Production entries for Finished Goods).
- It “fills” the stock quantity starting from the newest transaction to the oldest.
- Any quantity that cannot be matched to a recent receipt is categorized in the oldest (>1 Year) bucket.
3. Report Types & Views 🚀
A. Inventory Aging (Quantity)
- Focus: Physical volume management.
- Best For: Warehouse managers needing to rearrange slow-moving stocks to accessible areas or plan liquidations.
B. Inventory Aging (Value)
- Focus: Financial impact analysis.
- Calculation:
Aged Quantity×Weighted Average Rate. - Best For: CFOs and Accountants for provisioning loss on non-moving items.
4. Aging Buckets 📅
The report categorizes inventory into the following standardized timeframes:
| Bucket | Risk Level | Actions |
|---|---|---|
| 0 - 15 Days | Active | Fresh stock, no action needed. |
| 16 - 30 Days | Healthy | Regularly moving stock. |
| 31 - 90 Days | Monitoring | Review consumption patterns. |
| 91 - 180 Days | Slow-Moving | Investigate reason for slow consumption. |
| 181 - 365 Days | High-Risk | Potential obsolescence; prioritize for use. |
| Over 1 Year | Obsolete | Critical; consider liquidation or write-off. |
5. Global Filters & Data Logic 🛠️
- Inventory Type:
- Physical: Uses the current “Real-Time” stock balance.
- Store: Reconstructs balances as of a specific historical Month End for back-dated auditing.
- Item Category:
- RM (Raw Materials): Aging is calculated based on GRNs (Supplied Invoices).
- FG (Finished Goods): Aging is calculated based on MIRS/Production (Internal Receipts).
- Compute Aging As On: Allows users to check what the aging profile looked like in the past.
6. Source Transactions 🔄
The aging engine synthesizes data from:
- Stock Balances: Current and historical ledger balances.
- Purchase Receipts: Supplier invoices and delivery notes.
- Production Logs: Inward movement of semi-finished or finished products.
- Item Costing: Weighted average rates for financial valuation.
7. Best Practices / Tips 💡
- Provision for Losses: Use the Value Report at year-end to identify the “Above 365 Days” category. This value should be considered for inventory devaluation or impairment.
- Stop Procurement: If a Raw Material shows significant quantity in the 180+ Days bucket, immediately put a hold on all pending Purchase Indents for that item.
- Check the “Obsolete” Bucket: Items in the >1 Year bucket that show zero receipts in the last year are “Dead Stock.” Plan a scrap sale or return to the vendor if possible.
- Dashboard Trends: Monitor the Aging Dashboard to see if the “Value Over 90 Days” is increasing month-over-month; this is a sign of inefficient procurement or production scheduling.