Inventory turnover is a strategy for analyzing and systematically monitoring everything that enters and leaves the shelves.

Good inbound and outbound management of your business’ products can generate excellent results, from more efficient deliveries to reduced workflow costs. Among several strategies that can generate this, we will highlight the incentive to inventory turnover.

Want to know how this concept works? How important is it? How to calculate it and tips to control it in your company? So read on and check out this exclusive text we’ve prepared for you.

After all, what is inventory turnover?

As the name implies, inventory turnover is a strategy focused on logistics, which aims to systematically analyze and monitor everything that enters and leaves the shelves, taking into account:

• product type;
• delivery times from suppliers, to understand when the replenishment of raw materials and products will be;
• storage time;
• movement volume, among others.

In general, the calculation is made taking into account the total sales made, the volume of products stored and a specified period of time.

The account is made through variable cycles, which correspond to the specifics of each business and the issue being analyzed. Thus, it is possible to carry out the analysis periodically, taking into account the deadlines determined by the managers.

Importance and benefits of inventory turnover

First, it is worth noting that it is extremely important that entrepreneurs know how their stock levels are, understanding which items have been renewed, sold or what is stuck.

Based on the results of the inventory turnover calculation, the entrepreneur is able to design sales action strategies, avoid possible losses, forecast replenishment and understand a little more about the demands.

For this, it is necessary to understand how product turnover works, how fast the inventory is renewed and how long it takes to store each item. In this sense, inventory turnover analysis is an important method to assess the company’s management and how the balance of the sale is.

Even because bad inventory management generates several harms that, if they continue for a long time, can even cause the business to go bankrupt.

After all, stock stopped for a long time in the company means wasting money with unnecessary expenses, such as cleaning, risk of loss, conservation, risk of breakage, storage and loss of validity.

All of this ends up generating losses for the organization, with a negative impact on the company’s capital.

How to calculate your business’ inventory turnover

Inventory turnover calculation is usually performed taking into account a specific period. For this, it is essential that the business has strict control over its storage.

In addition, inventory turnover is essential to balance the company’s production flow.

To calculate it is very simple. Just divide the number of units that were sold in a given period by the average inventory volume. The period analyzed may be the one that best fits the company’s demands, but it is noteworthy that the bill is usually made per year.

Another point that this analysis allows is to calculate how the return on the invested amount is. In other words, understand if the value that the company is demanding for its purchases is generating the expected return.

Here, the operation is also simple. Divide the margin generated on sales by the volume of average inventory over a period that you will have the analysis of the amount invested.

The results of these operations help managers to understand which are the best decisions for their business, such as which products are most worthy of investment. Let’s say you have a clothing store and the margin for the “shoes” category is $100K and the average inventory value is $10K. That means you got a return of 10 times the amount invested.

But if, on the other hand, the margin of the “coat” category is R$ 200 thousand and the investment in stock was R$ 40 thousand, the return is only 5 times. In other words, it may be more advantageous to bet on the sale of shoes in your store.

Inventory control tips for your company

Now that you have a basic understanding of how inventory turnover control works in your company and how to calculate it, you need to understand how to do it properly.

The focus of the entrepreneur who is carrying out this analysis is to avoid any type of loss, ensuring that the operation works perfectly. To make this concept a little easier to understand, we have separated two tips, check it out:

1. Manage your inventory

No matter the level of merchandise stored in your stock, it is necessary that you carry out a periodic evaluation to avoid possible problems.

Therefore, inventory management is essential for the manager to better understand the turnover of products in stock, better understanding the entry and exit of items.

2. Get a greater understanding of your sales

Companies that have a well-established concept of inventory turnover are able to better identify which products have the best sales rate. In other words, they can understand which products the company sold the most.

But, for that, it is necessary to have control over all the information of the operations and to monitor them.

3. increase turnover

When purchasing goods and raw materials from your supplier, it is necessary to carry out a cash analysis of your business. Therefore, it is important to know all the numbers of your company in order to be able to better manage stock turnover.

Wrapping up.

Returns on a particulary business endeavour is guaranteed if and only if there’s good analysis and systematic monitoring of inbound and outbound of business products.