Retail Metrics That Matter: Inventory Turns

Hey there, #retailfam! Do you ever feel like your inventory is taking over your life? Well, fear not! One important metric that can help you get your inventory under control is inventory turns. Let’s dive into what inventory turns are, why they’re important, how to calculate them, and some strategies to improve them. So, let’s get started!

What are inventory turns?

Inventory turns, also known as stock turnover or inventory turnover, is a measure of how many times a company’s inventory is sold and replaced over a specific period of time. It is an important indicator of how efficiently a company is managing its inventory. Essentially, the higher the inventory turns, the better a company is at managing its inventory.

Why are inventory turns important?

Inventory turns are important for a number of reasons. For one, they give you a clear picture of how efficiently you’re managing your inventory. A low inventory turnover rate can indicate that you’re carrying too much inventory or not selling enough products, which can lead to higher storage and carrying costs. On the other hand, a high inventory turnover rate can indicate that you’re managing your inventory efficiently, selling products quickly, and not tying up too much capital in inventory.

How do you calculate inventory turns?

Calculating inventory turns is actually pretty simple. You just need two pieces of information: the cost of goods sold (COGS) and the average inventory. Here’s the formula:

Inventory Turns = COGS / Average Inventory

Let’s say you have a COGS of $1,000 and an average inventory of $500. Your inventory turns would be:

Inventory Turns = $1,000 / $500 = 2

So, your inventory turns would be 2.

How do you interpret inventory turns?

So, you’ve calculated your inventory turns. Now what? Well, the interpretation of inventory turns can vary depending on the industry and the type of products being sold. Generally speaking, a higher inventory turnover rate is better, as it means you’re selling more products and not tying up too much capital in inventory.

In some industries, a higher inventory turnover rate is expected. For example, in the fashion industry, where styles and trends change quickly, a high inventory turnover rate is necessary to keep up with demand. In other industries, like electronics, a lower inventory turnover rate is expected, as products have a longer shelf life.

In general, an inventory turnover rate of 4 to 6 is considered healthy for most industries. However, it’s important to compare your inventory turns to other companies in your industry to get a better sense of how you’re performing.

Strategies to improve inventory turns:

1. Accurate Demand Forecasting:

One of the best ways to improve inventory turns is by accurately forecasting demand. This involves using data and trends to predict how much inventory you’ll need for a specific period. By having a clear picture of demand, you can order the right amount of inventory and avoid overstocking.

2. Strategic Pricing:

Another strategy for improving inventory turns is by adjusting your pricing strategy. This can involve using sales or promotions to move products that aren’t selling quickly. Alternatively, you can increase prices on high-demand products to maximize profits.

3. Efficient Supply Chain Management:

Efficient supply chain management can also improve inventory turns. By working closely with suppliers and distributors, you can ensure that products are delivered on time and in the right quantities. This can help you avoid stockouts and minimize excess inventory.

4. Effective Marketing and Promotions:

Effective marketing can also help improve inventory turns. By using targeted campaigns and promotions, you can drive demand for specific products and move inventory more quickly.

5. Efficient Fulfillment:

Efficient fulfillment can also help improve inventory turns. By streamlining your omnichannel order fulfillment process, you can get products to customers more quickly, which can help reduce excess inventory and improve inventory turns. This can involve using tools like automated order management systems or outsourcing fulfillment to a third-party provider.

6. Effective Returns Management:

Effective returns management is another key factor in improving inventory turns. By having a clear and efficient returns process, you can minimize the amount of excess inventory you have on hand. This can involve things like offering free returns or exchanges, making it easy for customers to return items, and having a clear process for forecasting and processing returns.

7. Consistent Inventory Tracking:

Finally, consistent inventory tracking is essential for improving inventory turns. By tracking inventory accurately and regularly, you can quickly identify problem areas and take action to correct them. This can involve using tools like retail inventory planning software to plan and track inventory in real-time, using barcodes or RFID tags to track inventory, or conducting regular physical inventory counts.

TL;DR – inventory turns are an essential metric for any retail or e-commerce business. By tracking your inventory turns, you can get a better sense of how efficiently you’re managing your inventory and make data-driven decisions to improve your performance. By using the strategies we’ve outlined above, you can improve your inventory turns, reduce carrying costs, and improve your bottom line.