Blog » What Is Stock Rotation: The Ultimate Guide
What Is Stock Rotation: The Ultimate Guide
Author name: Bradley Taylor
Inventory management is an integral part of a successful product-based business. That said, maintaining sound inventory management doesn’t come without challenges. One of the most common obstacles facing companies across industries is determining how to deal with old, slow-moving, and expirable products.
Too much unsellable inventory incurs needless storage costs. Presenting expired goods to customers is terrible for your business’s reputation. To address these problems, businesses often employ a strategy called stock rotation. In this article, we’ll provide a clear stock rotation meaning, why it’s important, and some best practices for successfully implementing the strategy into your operations.
What is Stock Rotation?
Stock rotation is a method of organizing inventory in a strategic way to dictate which physical units sell first. The process involves moving certain products in front or behind others, both in warehouses and retail store shelves. Items are prioritized or deprioritized based on a variety of traits including manufacturer date, arrival date, or expiration date.
What is the Main Purpose of Stock Rotation?
The main purpose of stock rotation is to maximize inventory efficiency by minimizing waste and slow-moving items. Its primary aim is to reduce the risk of deadstock: products becoming expired, obsolete, or unsellable. When done correctly, businesses benefit from fresh inventory and optimized storage space. Additionally, stock rotation is also a common tool in customer experience strategies as it ensures your audience gets consistent access to top-quality products.
Why Is Inventory Rotation Important?
Inventory rotation plays a vital role in business operations for several reasons. Here are some key details highlighting the importance of stock rotation.
Minimizes Waste
Effective stock rotation reduces waste in your company’s inventory management. Waste can take many forms, such as expired products, damaged goods, or items that simply lose demand over time. Implementing a stock rotation methodology helps ensure that older products are prioritized for sale or use. This reduces the likelihood of spoilage, obsolescence, and other forms of waste.
Better Product Quality
Stock rotation directly contributes to better quality products. When you prioritize proper inventory turnover, goods are sold and used while still at peak quality. This is particularly critical in industries where freshness and functionality change over time. Some examples include electronics, food and beverage, and pharmaceuticals.
Improved Customer Satisfaction
Stock rotation is a powerful tool for boosting customer satisfaction. With product rotation, customers always receive high-quality and reliable goods. As a result, buyers will establish trust in your business to consistently deliver goods in optimal condition. When this happens, they are more likely to return, leave positive reviews, and recommend your brand to others.
What are the Different Types of Stock Rotation?
There are three main types of stock rotation systems: First In, First Out (FIFO), Last In, First Out (LIFO), and First Expired, First Out (FEFO). Each serves a specific purpose based on the nature of the products. They involve different strategies for managing inventory flow and reducing the risk of outdated or unsellable stock. Understanding these 3 types of stock rotation systems is crucial for selecting the right method for your business needs.
First In, First Out (FIFO)
FIFO is one of the most widely used stock rotation systems. With this strategy, the first items to enter the inventory are the first sold. It results from placing new inventory behind existing inventory in warehouses and store shelves. Doing so allows older products to move before newer items, preventing them from sitting idle and eventually reaching an expiration date or loss of usefulness.
Common Use Cases for FIFO Stock Rotation
The FIFO method is particularly important for perishable goods like groceries, where maintaining product freshness is a priority. For example, when new produce arrives, the warehouse or store places the fresh items in the back while sliding the older products to the front. Other industries where FIFO is common include pharmaceuticals and cosmetics.
Last In, First Out (LIFO)
The LIFO stock rotation method is the opposite of FIFO. It prioritizes selling newer items before older stock. With this type of stock management, businesses place the most recent inventory on the front of shelves. By extension, older items slide further down the line.
LIFO is less common than FIFO. It can make it difficult to keep up with slow moving stocks and may also affect product quality. However, it is useful for certain goods and sometimes financial and tax-related benefits.
Common Use Cases for LIFO Stock Rotation
LIFO is common in industries where inventory costs are rising. This could be retail, manufacturing, or construction. In a scenario with rising inventory costs, companies may benefit from selling the new inventory first as it can lead to tax benefits. The newer items will have a higher cost of goods sold (COGS) which can lower taxable income.
First Expired, First Out (FEFO)
FEFO is a stock rotation method that prioritizes items based on expiration dates. While it is similar to FIFO, it’s different because it focuses specifically on expiration dates, not the date of receipt. In some cases, older products may have longer expirations. With FIFO, these goods would still go first, but with FEFO you would deprioritize them in favor of any items with closer expiration dates.
An Example of FEFO In Practice
FEFO is common in cosmetics where skincare items, makeup, and fragrances have limited shelf life. These products often contain natural ingredients or active compounds that can degrade over time. For example, a skincare brand that produces organic lotions. FEFO can help ensure any items containing sensitive ingredients like vitamins are used and sold before they expire.
Implementing Stock Rotation in Your Business
Successful stock rotation requires sound planning and the right tools. With these in place, you can implement a stock rotation strategy that improves your operations while meeting customer expectations.
Choosing the Right Method for Your Business
The most suitable stock rotation method for your business depends on your specific operational requirements and the nature of your products. Naturally, if you sell perishable goods, FIFO or FEFO will make the most sense as they are best at preventing items from expiring. After assessing your product type, you can analyze your inventory turnover rates, storage capabilities, and sales patterns. This will inform you which specific method is best for your main objectives, whether it's maximizing profits or optimizing inventory levels.
Modern Technologies for Efficient Inventory Turnover
Today’s technology helps businesses use stock rotation with much greater precision. With the right tools, you can even implement automated stock rotation to reduce the work required to execute the rotation strategy properly. Here are a few technologies that can significantly improve inventory turnover.
Lot Numbers and Barcode Scanning
Pairing barcode systems with lot number tracking provides a complete picture of product movement. Barcodes store information that lets you quickly identify items through product information such as manufacturer, name, and stock keeping unit (SKU). Lot numbers allow you to accurately classify items based on manufacturing batches, expiration dates, and packaging dates. You can use these tools to correctly store goods according to your rotation method.
Inventory Management Software
Dedicated inventory management software is likely already part of the technology stack for any modern product-based business. That said, the software can be particularly useful for stock rotation due to its ability to sort and organize products by attributes like manufacture or expiration dates.
Additionally, advanced inventory management platforms often include forecasting tools that analyze historical sales data. This can help you predict future demand to avoid overstocking, which leads to wasted inventory. Inventory management software also integrates well with barcode scanners and other technologies in the stock rotation workflow.
Internet of Things (IoT) Sensors
IoT sensors are transforming inventory management through real-time insights into stock conditions and movement. Smart devices can collect and transmit data such as temperature, humidity, location, and handling conditions. For example, with an IoT sensor, temperature-sensitive products can trigger alerts if exposed to conditions outside the acceptable range. This allows immediate corrective action and improved stock rotation management for sensitive goods.
Best Practices for Effective Stock Rotation
These best practices can help maintain product quality and improve the success of your stock rotation efforts.
Use Discounts for Slow-Moving Stock
Discounting slow-moving inventory is a practical and effective way to maintain healthy stock rotation. When certain products don’t sell as expected, offering discounts can entice customers to buy them. This practice helps you avoid high storage costs and wasted space resulting from overstocked inventory. It also keeps your offering fresh and more appealing to customers.
Routinely Audit Your Stock Rotation Strategy
Conducting periodic reviews allows you to identify inefficiencies in your system. Over time, inventory patterns, customer demands, and operational processes can change. This makes it necessary to reevaluate how you manage and rotate stock to ensure your strategy remains effective. With regular audits, you can see whether prioritized items are being moved out as planned.
Leverage Data Analytics for Smarter Stock Rotation
Using data analytics is a powerful way to refine your stock rotation efforts. Modern inventory management systems and analytics tools provide valuable insights to make informed decisions. You can use these insights to easily adjust your strategy to prioritize the right items for rotation. Additionally, demand forecasting can help you understand historical patterns to plan better sourcing strategies.
Conclusion
While effective stock rotation focuses on inventory movement and waste prevention, having a reliable system to manage detailed product information is just as critical. This is where PIMInto can make a significant difference. PIMInto’s product information management (PIM) system gives you a comprehensive tool for storing, managing, and distributing all aspects of your product information.
Get in touch today to see how our PIM fosters better product data to help you generate more sales from the inventory you work so hard to stock effectively.
Modified on: 01/15/2025