Knowing your inventory turnover ratio additionally allows for a better understanding of cash-flow management, through inventory optimization, and decisions dealing with pricing and purchasing.Ĭonsider a retail outlet stocking a wide array of trendy, fast-fashion items. This financial ratio allows a company to calculate how long it may take, on average, to sell its inventory.Īs previously mentioned, the main benefit of knowing your company’s inventory turnover ratio allows for more effective inventory management strategies to be implemented, as the ratio will assist in highlighting weak points within the current inventory management system. The inventory turnover ratio, or a business’ inventory turnover, refers specifically to the number of times a business has sold and replaced its stock within a given period. This article will explore the uses of the inventory turnover ratio, by looking at the factors that affect it and how to implement the ratio calculation. The way in which this is usually calculated is by using the inventory turnover ratio. This helps businesses assess the efficiency of their inventory management, demand forecasting, and marketing strategies, allowing them to make any necessary adjustments to improve their sales. This will help you order new stock of your best items and also quickly discover which items could potentially become dead inventory, allowing you to make discounts for those items at the right time before their overstay in the inventory impacts your capacity to adjust to increased demands for the other items.It is imperative to the system of operations that businesses take note of what stock is selling and how quickly it is selling. How? You will get a real-time overview of your inventory as it gradually sells. Automate purchase ordersįinally, automating your systems for processing orders and inventory tracking will also help you improve your inventory turns. Uncovering these patterns will help you improve forecasting of expected demand for the items you sell. Several industries feature seasonal changes for example, the demand for light clothing will peak at summertime and will be lowest during winter. You should look at how the demand changes over time. ![]() Your inventory size should depend on the market demand, which can change over time. Is it the sales pitch? Is it inventory management? Or is it the new products? Improve forecasting If they have fast inventory turns, it means that they are doing something right. ![]() You will benefit from analyzing the inventory turns of your competitors in your industry, because they can serve as benchmarks to what can potentially be achieved. Check or change your ranking in your industry While one may see this as taking a hit in the expected revenue, this is still better than insisting on the original price and still not selling them. To deal with dead inventory, one effective method is to sell them at a discounted price. Dead inventory refers to goods that stay in the warehouse for a long time simply because they are not sold. ![]() One big reason why a business has a slow inventory turn is because of so-called dead inventory. ![]() You should look at how reliably they can deliver the supplies you need! The best suppliers aren’t always the ones with cheapest supplies, but the ones who can most reliably deliver the supplies, especially when you need them. In fact, your ability to deliver the items that your customers are buying will make or break your business! Therefore, the cost of the supplies offered by your suppliers should not be the sole criteria in selecting them. Increasing sales will result in increasing the speed of your inventory turns. How can you improve your inventory turns?Īs inventory management is an elaborate science and art, you need to consider the following to improve your inventory turns, as listed by Oracle Netsuite: Streamline the supply chain
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