![]() It tells you how much you sell as a ratio to what you keep in stock. Inventory turnover ratio is a crucial measure of efficiency, as it calculates how much a business sells as a percentage of its total inventory. Why is inventory turnover ratio important? This article helps you learn how to increase inventory turnover, understand what is a good inventory turnover ratio for manufacturing companies, and how to apply it to your business. Your optimal turn rate depends on the size of your business and what you manufacture. Therefore, you need to know how to calculate your inventory turnover. These questions go to the heart of inventory management and production flow. Am I keeping too much inventory at one time?.Knowing about your stock turns helps you to make decisions about your business. It is a critical business performance metric, yet many manufacturers neglect this. Your inventory turnover ratio is the amount you sell in relation to your average inventory. It’s also important to consider the rate at which inventory arrives and leaves your shop floor. Inventory management is not only about the materials and goods you have at any time. Also, your decisions must take into account other factors (ABC Analysis, Service KPI, Safety Stocks & EOQ…).As a seller of physical goods, you must understand how to manage your inventory for your business to keep growing. ![]() ![]() If this is the case, you will be able to analyze and make decisions to manage your stocks more smoothly. Is the inventory turnover ratio set up and automatically calculated over your whole portfolio? It is not possible to improve processes if you are not able to measure them reliably and systematically. Keep in mind that in inventory management, it is essential to measure. What should you do if your inventory turnover KPI is systematically too high compared to your average lead time? Or constantly equal to 0, because you are experiencing a flood of stock-outs? How to optimize my Inventory? – Go furtherįinally, the last question I am often asked is simply related to performance management. It is always better to proceed step by step. If your forecast is unreliable, or if you don’t have a forecast yet, use past sales. It is wise to use your forecasts in the calculation to anticipate changes in demand You will tend to overestimate your stock coverage before a peak in sales and underestimate it before a drop in demand. Indeed, if you use the data of the last few weeks, you will not be able to anticipate strong sales variations. If your business has a strong seasonality, be careful when interpreting the value of your inventory turnover KPI. Otherwise, the calculation becomes completely wrong. Always make sure you use the same valuation for inventory and sales. I repeat this because it is a major mistake that I see very often (even with some of the clients I coach). Your indicator will get more accurate over time. Start today with your available inventory, save your data as you go along, and you’ll be able to calculate your inventory turnover over a short period. If you are in this situation, my advice is the following: don’t wait. I deal with this question regularly from members of my classes. I don’t have any Inventory data history – what should I do? Inventory Turnover: 5 Questions and common mistakes 1. Thus, in this example, the entire stock rotates two and a half times during the year.
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