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How to Improve Turnaround

Inventory Turn around

As a small business owner, you’re always looking for ways to increase sales and profit and optimize inventory handling. 

There’s a delicate balance between keeping too much stock or too little at hand. Too much stock results in bloated expenses and resources that could be spent elsewhere. And too little inventory can turn customers away since there’s no stock to fulfill orders. 

For the most part, inventory management is about maintaining the perfect balance and ensuring you have the right stock at the right time. One key metric that can help you maintain this balance and make better business decisions is inventory turnover. 

But what is inventory turnover?

In this article, we’ll delve into the crux of inventory turnover and explain why it matters to you as a retailer. We’ll also explore the various ways a company can improve its turnaround.

What Is Inventory Turnover?

Inventory turnover is simply the amount of stock sold in a given period. In other words, inventory turnover indicates how fast a company sells. 

Knowing your company’s stock turnover gives you insights into what products are selling best and how you manage the overall costs. 

So, what does inventory turnover mean for your business?

A faster turnover indicates your company is performing well. A high inventory turnover means strong sales (and a possible inventory shortage) since the stock is moving fast. 

On the other hand, a weak inventory turnover means weak sales (and a possible excess in inventory). A low stock turnover means you’re doing something wrong. This, in most cases, is either late or slow restocking of goods or overstocking of slow-moving products.

Importance of Inventory Turnover

Managing your inventory turnover is important for three reasons:

1. It Reduces Costs

Excess inventory can be costly to any business. 

Storage costs, obsolescence, damages, and administrative costs can add up to almost 30% of the cost of your inventory annually. This can be cut down with a fast-moving inventory. You can keep a tab on your inventory with the help of inventory management software.

2. It Increases Profitability

Understanding your inventory turnover is key to increasing profitability. 

Once you have the right stock in the right quantities at the right time, you’ll never have to worry about wastages and unfulfilled orders—both of which impact profitability negatively. A high inventory turnover leads to more sales and increased profits.

3. It Helps Retailers Make Better Business Decisions

Understanding your inventory turnover can help you make smart business decisions. Why? You’ll know what products need to be reordered and in what quantities. You’ll also understand what items are underperforming and make informed replenishment decisions.

How Can Companies Improve Inventory Turnover

Now that you know what inventory turnover is and why it matters, what measures can you take to improve it?

1. Invest in A Robust Inventory Management System

To improve your inventory turnover, you’ll need to track it first.  

An inventory management system will enable you to track your stock and sales in real-time. It allows you to accurately track current inventory levels and identify fast and slow-moving items, so you can make better replenishment decisions.

2. Improve Demand Forecasting Accuracy

If you’re looking to improve inventory turnover, it’s crucial that you only order items that are in high demand. Accurate demand forecasting is hence critical. 

The first thing you’ll want to do is identify market trends and items with seasonal demand patterns. This will help you increase reorder value for certain items based on seasons, patterns, and trends. Your inventory management system should help you identify these trends.

3. Reorder Smarter

Only reorder based on need. Use the existing inventory and sales data to determine the type and quantity of stocks to order. Inventory costs money to carry and ties up working capital. Therefore, caution should be exercised before placing huge inventory orders.

Wrapping Up

Inventory turnover is simply the amount of stock sold in a given period of time. 

Knowing this value is critical as it can help you reduce costs, improve profitability, and make better business decisions. The first step to improving your inventory turnover is to invest in robust inventory management software. 

With the right software, you can accurately track inventory and sales in real time and make more informed business decisions. 

Need an expert in bookkeeping and inventory management? You could reap big rewards with the help of a small business advisor. Our services are designed to help you save money, time, and energy while running your small business.

Contact us today to learn more about how we can help your business grow and maintain optimal stock levels.

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