The Importance of Stocktaking for Measuring Inventory Turnover

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As a business owner selling goods, knowing how much you are selling is key to understanding how well your business is doing. While many new business owners make the mistake of assuming they are doing okay simply by observing that customers are still buying, doing so can be fatal for your business.

A successful business owner is always sure to measure the increases — and decreases — of sales across time. By doing so, you are in a better place to identify which areas need improvement, and which areas are doing well.

Inventory turnover is a key marker of the success of your business. If your inventory turnover is high, that means that demand is high, supply is in line, and customers are buying your goods. If inventory levels are low, however, this means that customers are not seeking out your products and sales are either plateauing or decreasing.

So how do you measure inventory turnover in a successful way? One of the key factors contributing toward accurate measurement of inventory turnover is an accurate stocktake.

While it may seem like a very simple measure for improving your ability to measure turnover, it can have a very big impact. In this article, we look at how stocktaking can affect your ability to accurately measure inventory turnover.

In order to measure your inventory turnover, you need to know exactly how much stock you have to begin with. While this may seem obvious, many business owners forget to take regular stock counts and therefore end up with out-of-date inventory records that don’t align with the amount of stock you actually have. Then, they attempt to measure inventory turnover. This is an almost impossible task and doing so without having taken an accurate stocktake will lead to an unreliable measurement.

So, how do we count stock accurately?

While many new business owners use a pen-and-paper method for counting stock, this is time-consuming and error-prone. We advise using inventory management software to help with an accurate stocktake.

Once you have taken an accurate stock count, all your information will be in one place. Then, you can use this stock count to compare it to your old records and see how far you’ve come. Comparing the new count with inventory records from previous months will help you identify sales patterns, trends and spikes — it will help you to accurately measure your inventory turnover.

Once you have an idea of your inventory turnover, you’ll be able to identify exactly what you’ve been doing right, and what you might have been doing wrong. Then, using that data you can decide how you might go about improving your processes to ensure you are ordering the most popular items to meet demand, keeping your customers happy and increasing your overall profitability. You can even go the extra mile and classify your inventory so that when it comes to ordering your next lot of stock, you’ll know exactly what to order – and what to avoid.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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