Inventory turnover: learn the calculation as well as how it can affect your company

4 minutes to read

Warehouse management, when well structured, can bring a number of benefits to your organization. It allows minimizing waste, boosting sales, maintaining profit margins in the measures previously defined by strategic planning, among other advantages.

For this, it is essential to have control over the various indicators available for the sector, assessing how the company is evolving in this management over time and finding points where improvements are needed.

One is the inventory turnover. Learn more about this indicator and see how it should be calculated in organizations.

What is inventory turnover?

Inventory turnover refers to an important indicator that allows the assessment of the situation of the warehouses, as well as making it possible to assess the health of the organization’s sales, since it verifies the inflow and items of its stock.

Through the inventory turnover calculation, it is possible to analyze the resources available to the organization, being able to verify which are the main threats and obstacles that can cause problems for your organization.

It shows how the inventory of your business is renewed within a certain period, as well as verifying the time that a product is stored before a sale.

What is the inventory turnover for?

Inventory turnover serves as an important indicator for the use of the organization’s resources. It becomes one of the main tools for assessing inventory management in the business.

Inventory turnover can be analyzed in different periods; however, it is more recommended that it be evaluated annually. It can be ascertained, therefore, on any scale and for any types of products to be produced.

It mainly serves to seek balance in the sales pace. After all, if it is accelerated, items may be out of stock. If it is slower, there may be a need to burn items to remove items that have been idle for a long time.

How is the inventory turnover calculated?

The inventory turnover is essential to improve the internal activities of your company. Therefore, it is important to know how to do your calculation properly. Let us check out the main steps to follow.

.first, it is essential to define the period calculated for the valuation of stock turnover. This is usually defined on an annual basis;

.in case of evaluation of perishable products, this period needs to be reduced;

.lifts two main information: the total of products sold in the period and the average volume in the inventory;

.The calculation is performed as follows: total products sold divided by the average stored volume.

What are the variables involved in inventory turnover?

Some variables need to be observed when calculating inventory turnover. They are:

.Frequency;

.total products;

.average volume;

.seasonality of sales.

What are the benefits of efficient inventory turnover?

Maintaining a properly updated and observed inventory turnover can bring a number of benefits to organizations, such as:

.identification of items that have high inventory turnover and not letting them run out of warehouses;

.guarantees better customer experience;

.the product is not outdated on the shelves;

.decreasing the need for storage space;

.reduction in the loss and theft index.

The calculation of inventory turnover is essential for your organization to be able to maintain good control of the warehouses and, thus, be able to avoid loss of items, expiration of products, breakdowns and theft, among other common problems in the storage of items.

Having a high inventory turnover is essential to promote growth and increase sales of your business. Read this article and understand how to keep this indicator growing in your company and solve your questions about the topic.

About the Blog

The VMI Portal is a portal of news and information on systems of collaboration between suppliers and customers, which is growing continuously. The idea is to promote and disseminate the concepts of Supply Chain Management (SCM) and Vendor Managed Inventory (VMI), among other topics.

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