If you want to avoid that your money is pond next to the stored goods, then you need to know how calculate the inventory turnover. Apréndelo to easily do so below.
Most of the retailers, especially smaller ones, do not get excited when they discover that they have excess inventory. This is because the costs of storage, insurance, damages and in general all kinds of expenses and losses that can lead to, can add almost 30% of the cost of our inventory annually.
These costs may continue to increase as you increase the excess inventory. This is the reason why the inventory management it is one of the best investments that you can make for your business.
Calculate the inventory turnover it is critical to determine that proportion is critical that retailers can use to ensure that they are managing the inventory and the supply chain your store.
It is one of the KPI crucial used to measure the overall performance of the business. In a few words, it is equal to the number of times during a certain period of the year you are able to sell and replace all your inventory.
What is the rotation of inventory?
The inventory rotation is the number of times in which a retailer sells and replaces its inventory. That is to say, it is a measure of the rate of goods into and out of the store.
For example: if a store retail has a volume of sales of the annual inventory of eight (8), means that it has completely sold its inventory to eight (8) times during the year.
But to get these results, first you have to learn how to calculate the inventory turnover.
How to calculate the rotation of inventory?
The inventory rotation we can calculate it in function of the entire store or also of one or more departments or categories of items. The evaluation of the inventory turns by category of items is also useful to compare the performance of different products.
We need to be clear that not all turnover rates are equalsome items may rotate more slowly than others. For example, if your store is clothest-shirts simple cheaper could have a inventory rotation higher than the t-shirts are more luxurious.
To calculate the index of inventory turnsthe cost of goods sold divided by the average inventory for the same period. As expressed by the following formula:
Cost of Goods Sold ÷ Average Inventory or Sales ÷ Inventory
To calculate your average Inventory a specific time period, use the following formula:
Average inventory = beginning Inventory + ending Inventory / 2
But as well, we can calculate the inventory rotation according to the following formula:
Stock turnover = COGS / average Inventory
What is the importance of the rotation of inventory?
To maintain a high turnover of inventory is key to keep the shelves full of fresh produce and cash flow. The retailers most successful apply the prescription to buy inventory and sell it fast, then buying more products to its clients and repeat the process.
When you have a low rotation, the capital stagnates and ends up eating your gross profit. That's why, to make the most of your inventory, you need to decide use a rate of rotation of inventory that balances the needs of the customers with your needs to ensure a solid return on investment.
You must also consider that a inventory rotation above the average, does not always mean that you're doing well, because that could be a sign of the use of a sourcing strategy ineffective, in which the retail purchase inventory with a lot of often, but in small amounts.
Conclusion
The inventory rotation is the number of times that a store sells and replaces its stock of goods during a given period, calculate the inventory turnover provides valuable information as to how the company manages costs and the effectiveness of your sales efforts.
The higher the stock turnover, the betterbecause this usually means that a company is selling products very quickly and that there is sufficient demand by their customers.
