Questions to Ask Yourself About Your Inventory Turnover

1. Questions to Ask Yourself About Your Inventory Turnover M: +91 9611 171 345 Email: sales@salesbabu.com

2. Questions to Ask Yourself About Your Inventory Turnover Every business has inventory and its cash flow as its lifeline for earning revenue in the longer run. There are different methods and statistics which can be implemented to a balanced inventory cash inflow and productive sales for the business. Inventory turnover methodology is one of them. Let’s understand how this inventory turnover formula will help in increasing our sales and having a balanced inventory in our warehouses. M: +91 9611 171 345 Email: sales@salesbabu.com

3. What is Inventory Turnover? Inventory turnover is the ratio, to give an insight into the efficiency a company has, both absolute and relative while converting it’s cash into sales and business revenue. In other words, it is a ratio depicting how many times an organization has sold and replaced inventory during a given period of time. Companies can then divide the no. of days in a given period by the inventory turnover formula to calculate the days it would take to sell inventory in hand. Calculating inventory turnover helps businesses in making better choices and do futuristic inventory planning on pricing, manufacturing, marketing and purchasing of new stock in demand. M: +91 9611 171 345 Email: sales@salesbabu.com

4. How is Inventory Turnover calculated? Inventory Turnover = Annual Sales / Average inventory for a period. Where: Average Inventory=(BI−Ending Inventory)÷2 BI=Beginning Inventory Point to note here is that some of the companies use cost of goods sold, instead of annual sales while calculating the inventory tracker value. When using the inventory turn ratio to compare companies within an industry, we need to make sure we are using ratios calculated on the same basis. If you assess one company using the cost of sales in the calculation, and the other using total sales, you'll have an inconsistent and faulty comparison . These improper value of inventory turnover ratio will be of no use for your business management. M: +91 9611 171 345 Email: sales@salesbabu.com

5. Questions on Inventory Turnover Why do you need to measure inventory turnover? You’ll make smarter business decisions Understanding your market trends and closely monitoring stock turn helps in making better purchasing decisions, keep a constant merchandise movement in our warehouses and sell smarter to your customers with a complete view of market trends in hand. This Inventory metrics can inform you of many decisions like: • What items need to be ordered – Understanding your product market trends can be repeated using these turnover values and help us to decide on which products need a refill and which product is going obsolete in our warehouses. • What units need to be kept in front of the sale aisle – Dead stock and out of date products can be reshuffled and sold first to avoid any product wastage. • What has to be ordered in advance to allow ample time for manufacturing/production/shipping – understanding the amount of raw material required in the products production cycle, we can ensure that we don't run into out of stock or stock-out situations and preorder our required amount of spare parts in advance. Clearly, when we have a solid handle on inventory turnover, we have better answers to our daily inventory needs which are useful for making futuristic and more efficient stock requirement decisions. M: +91 9611 171 345 Email: sales@salesbabu.com

6. Questions on Inventory Turnover continues... What's a normal Inventory Turnover Ratio? Inventory turnover ratio varies from one industry to the other. Comparing the inventory turnover rate for our company against our competitors will give us an insight into their inventory management team and help us to generate more sales with our learning curves. In general scenarios, retail grocery stores and food chains typically have a much higher inventory turn rate as these low cost products are perishable in nature and require more diligent management team. Heavy machinery and hardware companies have lower turnover ratio due to the high rate of products and longer duration of production and sales cycle. M: +91 9611 171 345 Email: sales@salesbabu.com

7. Questions on Inventory Turnover continues... How to improve Inventory Turnover ratio? • Better Forecasting Forecasting is very important in understanding your inventory trends. If we can understand and forecast our customers demand trends correctly, we can only order the required set of inventory. With the high demand for required stocks in hand, we can definitely improve our business revenue. • Improve Sales Improved marketing strategies help in improving overall inventory ratio. With better sales of in-demand products with advertisements, promotional events and offers,the inventory ratio will definitely improve. This in-turn helps in increasing overall revenue for the organization. • Reduced Product price Many companies apply the option of reduced prices to an attractive level to increase their product sales. Items with a lower sales rate and with marketing team not able to increase its demand, providing discounted price strategy helps in increasing the sales of the products and overall working capital for the company. In such low profit margin cases, out and outdated inventory stocks can be quickly removed to improve the overall turnover ratio of the products. • Focus on Top Selling products Applying the Pareto's 80:20 principle, we should invest more on the products that get you the maximum profit and at the same time eliminate or reduce the purchases of products which have low sales rate and are incurring losses for your firm. Removing the lower turnover ratio for products in loss, will improve the overall inventory turnover for the company as a whole. M: +91 9611 171 345 Email: sales@salesbabu.com

8. Disadvantages of Inventory Turnover Ratio Let’s understand some of the disadvantages of inventory turnover ratio. • Lost Sales Moving your inventory to a high inventory ratio can have its own negative effects. Merchants man elect to limit the variety and amount of the products they carry to prevent a backlog of inventory and keep goods moving in their warehouses. While merchants are more focused on improving the inventory ratio, products in hand can quickly go out of stock and many customers may find it difficult to get the required quantity. In such scenarios many clients drifts towards many competitive products, to keep their required quantity fulfilled and may never turn back to the current product at all. • High Expenses Many merchants order small quantities of inventory to keep their inventory levels high and incur the greater cost for the business. Transportation expenses come to a higher value for repetitive and small orders. Also, merchants who order small quantities often ,miss out on the bulk discounts and special deals on high volume purchases. In some cases, merchants may have to order expensive express delivery methods to prevent out-of-stock situations. Along with these, many taxes and other processing charges get additionally added to multiple and frequently repetitive orders. M: +91 9611 171 345 Email: sales@salesbabu.com

9. Conclusion Inventory turnover ratio helps in knowing which products to store or reorder and how much to order. These information are the key game-changing insights for any business model. Having a solid knowledge on your inventory turn, allows you to stay on top of your game in making right decisions for carrying the correct amount of inventory at the correct time. SalesBabuCRM is an efficient cloud based inventory management tool to help you with analyzing your product requirements and manage your inventory. M: +91 9611 171 345 Email: sales@salesbabu.com

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