As a business owner, the biggest investment that you are probably going to make is that of your inventory. Inventory management plays a key role in streamlining the supply chain, as well as in gauging how successful your business is. One of the most efficient barometers of your business’ success is your inventory turnover. To put it in technical terms, the inventory turnover is the sales generated from goods over the past year, divided by the cost incurred in replenishing the inventory.
In simple words, the inventory turnover is the number of times your inventory was completely emptied, and re-filled. So how is this important for your business? Looking at it plainly and simply, it is evident that a higher turnover is what we are looking for in any business. A higher turnover means that the inventory is flowing, and customers are actually buying what you are stocking. On the flipside, a low turnover is a reason to worry, since it means that you have an overstocked, slow-moving inventory.
The concept of inventory turnover can be better understood with this simple example- Business owner A invested $15000 at the beginning of the year on his inventory. By the end of the year, he had generated sales worth $20000, amounting to a gross profit of $5000. On the other hand, business owner B invested $5000 at three different intervals over the entire year, refilling his inventory each time it got emptied, and also generated a gross profit of $5000 by the year’s end.
The inventory turnover for A is 1, while that for B is 3. Even though their profit might be the same, but B’s business is considered to be more successful, since for the first period of the year, when he had invested $5000, he still had $10000 in hand, which he could use for other profit-generating purposes. On the other hand, A had his entire capital amount tied up in inventory, which means that he ultimately generated lower profit than B.
Apart from this basic advantage of having a high inventory turnover, the other essential application of inventory turnover for any business is that it helps in identifying the slower moving products in an inventory. Inventory tracking software or spreadsheets can be used for a better understanding of your inventory, and hence in the reevaluation of business plans.
McLane Logistics Technology provides customized Inventory Management Software system for businesses to effectively manage their inventory functions. For more information visit them at 4001 Central Pointe Parkway, Temple, TX 76504. You can also call them at 1-800-989-7568.
In simple words, the inventory turnover is the number of times your inventory was completely emptied, and re-filled. So how is this important for your business? Looking at it plainly and simply, it is evident that a higher turnover is what we are looking for in any business. A higher turnover means that the inventory is flowing, and customers are actually buying what you are stocking. On the flipside, a low turnover is a reason to worry, since it means that you have an overstocked, slow-moving inventory.
The concept of inventory turnover can be better understood with this simple example- Business owner A invested $15000 at the beginning of the year on his inventory. By the end of the year, he had generated sales worth $20000, amounting to a gross profit of $5000. On the other hand, business owner B invested $5000 at three different intervals over the entire year, refilling his inventory each time it got emptied, and also generated a gross profit of $5000 by the year’s end.
The inventory turnover for A is 1, while that for B is 3. Even though their profit might be the same, but B’s business is considered to be more successful, since for the first period of the year, when he had invested $5000, he still had $10000 in hand, which he could use for other profit-generating purposes. On the other hand, A had his entire capital amount tied up in inventory, which means that he ultimately generated lower profit than B.
Apart from this basic advantage of having a high inventory turnover, the other essential application of inventory turnover for any business is that it helps in identifying the slower moving products in an inventory. Inventory tracking software or spreadsheets can be used for a better understanding of your inventory, and hence in the reevaluation of business plans.
McLane Logistics Technology provides customized Inventory Management Software system for businesses to effectively manage their inventory functions. For more information visit them at 4001 Central Pointe Parkway, Temple, TX 76504. You can also call them at 1-800-989-7568.
