A primary motive for stock rotation is that a company positions older items so they sell more quickly than newer inventory. Rotating stock reduces the potential for throwing out inventory that expires or perishes. Obsolete inventory is a huge cost for companies and it can impede profits.Continue Reading
Though not guaranteed, the goal of rotating stock is that customers naturally select items placed at the front of a shelf or cooler. If a customer takes the first milk carton with the nearest expiration date, for instance, the store avoids having to throw that milk out because it goes bad. Similarly, a pharmacy that positions items with nearing expiration dates at the front reduces the need to dispose of that item.
In addition to waste, companies often have to discount or mark down items with pending expiration dates. By rotating and selling through older inventory first, the business may avoid constant discounts on items that impede profits.
For companies that use the first-in, first-out approach to accounting for inventory, rotating stock creates a natural flow. The oldest inventory, or those items received first, are more likely the first inventory sold in the store. This natural alignment simplifies the process of keeping financial records that recognize inventory costs and revenue.Learn more about Investing