Skip to content Skip to sidebar Skip to footer

What is Inventory Turnover and How It Relates to Increased Sales

inventory-turnover
credit:[email protected]_school_of_finance

Slow-moving inventory is frequent in business. There are frequently unsold things in stock, and you may be perplexed as to why. 

However, you must, of course, do a thorough examination of the situation. Because if you don't conduct the analysis right away, your company will suffer damages. Surely this isn't something you want to happen, do you?

You must pay attention to the inventory turnover ratio, or inventory turnover in Indonesian, in order for your business to continue to grow. Let's take a closer look at inventory turnover so you don't become too confused.

Definition of Inventory Turnover

Inventory Turnover is defined as the movement of goods from one location to another.

The word inventory turnover or stock turn may no longer be a foreign term to certain business owners. But, in case you didn't know, inventory turnover is just a measurement of how many times available goods are sold in a certain period of time. 

In general, inventory turnover is used to assess the success of a company's sales and how it compares to other industries.

The Inventory Turnover Ratio is a word that is linked to Inventory Turnover. This ratio can be used to determine how well a business owner manages his or her inventory. This is accomplished by comparing average inventory over a specific time period, usually a year, with the cost of products sold.

In conclusion, Inventory Turnover aids business owners in determining whether or not their company is in excellent working order. When goods in the warehouse turn over quickly, it indicates that sales are high and the business is doing well. If, on the other hand, goods turnover is slow, it indicates that more investigation is required since the firm is not working smoothly.

The Importance of Inventory Turnover

1. Inventory Turnover's Importance

Inventory turnover is critical for a business's success because it allows you to see how the conditions of the business you're running are. 

If the business turns out to be unhealthy or unpleasant, you can start looking for solutions to improve it right away. In general, there are two fundamental definitions of inventory turnover that you should be familiar with.

Inventory Turnover has been used as a Key Performance Indicator (KPI) by a variety of firms to demonstrate the performance of product sales. You can see whether the predicted sales target was met or not in this scenario.

2. As a guideline for making business decisions

Inventory Turnover allows you to keep a more thorough and efficient eye on inventory turnover. If that's the case, you can also obtain a sense of how much stock you have. 

You may also make better business judgments to purchase the next item in stock, enhance inventory movement, and increase sales by making better business selections. In layman's words, there are a few things you should know about how inventory turnover might aid in business decision-making.

c. Determine which things you should order or make, and which should be sent on to other departments

Make a list of the raw materials that must be ordered ahead of time so that the manufacturing process may be completed in a timely manner.

You can also tell if the items that generate the majority of your company's revenue have been functioning smoothly or not by looking at some of the important definitions of Inventory turnover listed above. 

In addition, inventory turnover can be used to compare one company to another in the same industry. If the Inventory turnover is equivalent to or even higher than the industry average, you can tell if the business is running smoothly.

Inventory Turnover Ratio Calculation

inventory-turnover-calculation

The inventory turnover ratio, as previously said, is a ratio that provides a precise description of the number of stock items sold in a certain period. The following formula can be used to calculate the inventory ratio:

Inventory turnover ratio = Cost of goods: Average goods

You can assist balance demand and inventory by determining the inventory turnover ratio. Some people believe that having a large inventory for sales will help their company grow. 

In reality, if inventory does not create sales, the company will lose a lot of money. You must not allow this to happen to you!

Increase Your Inventory Turnover Ratio With These Tips

Now that you know what an inventory turnover ratio is, what its benefits are, and how to calculate it, you should study some of the recommendations below on how to improve it.

Improving the accuracy of demand forecasting

If you want your warehouse or store's inventory to turn rapidly, you'll need to be able to read and forecast consumer demand so that your warehouse or store's inventory isn't too low or too high. This can be accomplished by studying market patterns, taking into account various market developments, and utilizing sales data from past years.

You can read the market and develop more accurate projections by using an inventory management system. This can be accomplished using the system's supplied analytical reports and automatic forecasting tools. 

An inventory management system, in fact, allows you to combine sales and stock management. This function allows you to acquire not only accurate but also complete data.

Developing a strategy to increase the rate of inventory turnover

To increase product turnover, a sales plan is essential. Frequently, a sales tactic that succeeds in one industry is found to be ineffective in another. As a result, you must choose what is the best business strategy for your company.

Pay attention to the age of your goods and reduce your outmoded inventory

If you keep goods at a warehouse or store, it's possible that the product or item will become obsolete and unfit for sale. In some industries, there are even products that appear to be decent but are no longer fit for use because they are old and have been held for too long.

You must know the age of your goods inventory when running a firm. You should sell any objects that have been stored for a long time but are still suitable for sale initially. 

Don't order or produce the same supply of items twice. This will result in losses for your company since if the stock of an item has reached the age restriction at which it should be sold, the item will no longer be able to be sold.

Inventory management software can be used to keep track of the age of products in a warehouse or store. You can keep a better eye on product stock turnover with this device.

Changing the way product pricing are determined

The number of sales is undoubtedly influenced by price. As a result, try to pay attention and determine whether your product's pricing causes a loss or increase in overall product sales.

However, keep in mind that simply lowering the product's price will not enhance sales. As a result, you should experiment with various pricing techniques, such as flash sales, bargaining, reductions, bonuses, and price games with the final 9, as well as applying different prices to different clients.

Sort products into categories

Examine your store's relevant product categories. Don't make it tough or confusing for clients to find the product they want in your store due to a disorganized product category (grouping) structure. 

This is especially crucial for those of you who sell items online. Ensure that all products are placed in the appropriate category (navigation menu).

Post a Comment for " What is Inventory Turnover and How It Relates to Increased Sales"