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. Use Gross Inventory Turns as a general guideline and as feedback to your stocking strategies.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 Calculate Gross Inventory Turn using the formula: Annual Gross Inventory Turns = Annualized Cost of Parts Sales/Average Total Parts Inventory Value.Ĥ. Determine Average Total Parts Inventory Value, based on quarterly numbers.ģ. Determine Annualized Cost of Parts Sales.Ģ. It is limited, however. You may still be sitting on some old stock, but the stock you are selling is moving so quickly that it’s skewing your ratio. You may be turning over some stock too quickly and running out before you replenish, leading to missed sales. It’s a valuable tool for your business, but it should not be the sole measurement you use. Case in point: read my article on True Inventory Turn to see what you’re missing with Gross Inventory Turn (it’s coming).ġ. So what does Gross Inventory Turn tell you? Well, the higher the number, the better – one of the few cases where high turnover is good for your business. Basically, the higher the turnover, the fresher your stock is, meaning you aren’t sitting on old stock forever, and your stock is more “liquid,” with the output being cash. Annual Gross Inventory Turns are a solid way to assess the performance of your Parts Department, and the management thereof. Now, some of you are already thinking, “My inventory value is not accurate, because our digital inventory is not reconciled with physical inventory, and hasn’t been for many years.” Well, that is a problem, and probably means you should back the forklift up and find my article on Inventory Reconciliation. Hopefully you have accounting software that calculates these two for you. You should be able to run a profit-and-loss report for the past year and find the Cost of Goods Sold total within the report.Īverage Inventory Value requires historical data. Generally, you would want to know the value of your parts inventory at different intervals within that year – say, at the beginning, at the end, and at quarterly intervals in-between. You average out these four figures to get your Average Total Parts Inventory Value. If you don’t have the historical data, now is the time to start recording it, so that you can go back later and calculate your Gross Inventory Turn. The Inventory Turn – no, it’s not the title of a sci-fi robot apocalypse movie. And it’s not that section of warehouse floor at the end of the aisle where you crank the pallet-jack really hard. The Inventory Turn has at least two specific forms:īoth of these can be represented by a mathematical formula. The Gross Inventory Turn equation is as follows:Īnnual Gross Inventory Turns = Annualized Cost of Parts Sales/Average Total Parts Inventory Value.
0 Comments
Leave a Reply. |
Details
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |