An accurate stock take ensures that the inventory turnover ratio is going to be a reliable tool. If the numbers are right, business owners can plan for the future. It is a powerful part of inventory management and allows the business to make smarter decisions on what parts of the inventory stock they should invest in. An accurate stock take can ensure consistency for your business when assessing inventory.
Simply, inventory turnover looks at the rate inventory comes into the warehouse and leaves the warehouse. The amount of stock you sell in comparison to your average inventory is considered your inventory turnover ratio.
This ratio lets a company see how much they have sold over a given time period. It’s important to note that the inventory number derived from this calculation isn’t your maximum inventory. Rather, it’s your average inventory during this time period.
Your average inventory takes into account the average value of your inventory. This is comprised of raw materials and direct labour costs as well.
For example, let’s say you keep a constant stock of 25 beach balls at any given time. If you are looking at your inventory turnover ratio for the month of June and you sold 100 beach balls, then you turned over your beach ball inventory four times.
The inventory turnover ratio helps you identify efficiency — it can show you how many times you completely re-stock a product over a certain period of time. This can be a guide to how much inventory a company should actually stock. Moreover, it can highlight which products aren’t selling and which ones need to be discontinued. Inventory turnover ratios can prominently show which products are selling quickly and where there is deadstock in the warehouse.
Accurate stock counting
When you want to measure inventory turnover, an accurate stock take can make all the difference. When your stock take numbers are reliable, they can play a fundamental role in business decisions. These numbers are a cornerstone in calculating the inventory turnover ratio. If the stock take is off, then the inventory turnover ratio will be off. Business owners should be looking at the inventory turnover ratio to guide decisions.
With proper stock take info, business owners can assess if they are stocking too much inventory at a time. They can also analyse sales patterns and see if they are moving enough product out the door. These numbers can also shed light on your manufacturing costs and highlight if you’re spending too much in that part of your business. Moreover, it can show if you are meeting demand and keeping up with orders to fulfil customer requests.
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.