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Inventory turnover is a variable that deserves care for the good management and profitability of any business. Excess inventories bring with them slow turnover, underutilized capital, risks of expiration or obsolescence, and security problems. On the other hand, underestimating inventories can affect sales or paralyze operations. To avoid all this, it is suggested to consult inventory management companies.
Next, you will be able to learn in-depth what inventory turnover is and how to achieve high turnover without losing control of the warehouse.
The lack of control and management of this asset is one of the causes of the premature closure of companies: only 38% of micro, small and medium-sized companies carry out inventory management.
So, why miss out on anything in terms of inventory management? Explore our basic guide to inventory control.
What is inventory turnover?
Inventory turnover, also called “turnover rate”, is an indicator of an operational and financial nature, which allows us to know on average how many times the company sells and replenishes its stock during a given p (generally a year).
A high inventory turnover value is a sign that the company maintains a constant flow of goods, that sales move inventory and, therefore, contribute to business profits.
However, a slow turnover suggests that sales are weak and that inventory levels may be overestimated and out of line with the level of operations. In addition, it is very likely that there period excess goods in the warehouse and a lack of inventory control.
It should be noted that the inventory turnover rate is an approximation, a representative value, and does not mean that storage costs are low, or high or that everything in the warehouse is under control.
Despite this, it is a “coherent” indicator of the line of business or activity and correlates with the “strength” of sales and the average time of the most significant products in the warehouse.
Retail companies, such as supermarket chains, are known to have very high inventory turnover. At the other end of the spectrum may be a vendor of specialized machinery parts or components.
In short, inventory turnover is a measure of the speed at which a company can sell its stock of merchandise and can be viewed as a critical measure of business performance.
How do achieve an adequate inventory rotation?
By obtaining the turnover rate, you can analyze other aspects of warehouse management, such as the inventory system and control techniques; and with it, gather the staff, draw conclusions and apply corrective measures if necessary.
These are some considerations that will allow you to achieve an ideal level of inventory turnover, without losing control of the warehouse.
1. Improve demand forecasts
The more accurate your sales forecast is, the fewer products you will have to keep in stock and the higher the turnover rate will be.
A good inventory management company will allow you to:
- Generate historical records of sales information by period.
- Analyze historical sales data to determine trends, cycles, and seasonalities and based on this, approximate a better forecast of future demand.
2. Classify and prioritize your inventories
Regardless of the line of business, each item in your catalog will have a different demand behavior. So, prioritize your warehouse goods based on cost and demand. Classification methods such as ABC or 80/20 for inventory management can help you find those items of low demand or low frequency in sales and differentiate them from those with high demand that accelerate turnover.