From the supermarket to the pharmacy, from the industry that manufactures the chair used in your home office to the store where you buy your clothes… All these companies need a organized stock to deliver its products with the quality required by end consumers.
However, it is necessary to do more than just ensure an excellent physical space and qualify your team to optimize daily activities. You must act with stock turnover, knowing how to calculate it correctly so that the company works with the lowest possible expense and the highest possible profit.
What is inventory turnover?
Inventory turnover is the indicator that shows the circulation of goods, how many times they were sold and completely replaced in the warehouse. This tool is essential for evaluate whether the inventory management is efficient, with the necessary balance between buying and selling products.
In the ideal scenario, the stock does not have excess or insufficient stock. Therefore, the stock capacity remains within acceptable parameters, space is not occupied beyond pre-established limits and storage costs do not increase.
Stock turnover also allows for monitoring and variety of products that depend on demand. If solutions have an expiration date, extra attention must be paid. This happens in several sectors, including pharmaceutical.
How to calculate inventory turnover
Inventory turnover refers to how many times inventory was sold and replaced in a given period of time. This is an easy-to-calculate calculation: inventory turnover is equal to total sales divided by average inventory volume.
For example: if the average inventory volume of a metalworking industry is 5,000 parts and 15,000 of them are sold annually, the inventory turnover is 3. In other words, the inventory was renewed 3 times. If the number is equal to or less than 1, this would mean that the inventory was never renewed.
Generally, the calculation is performed to find out the inventory turnover for the year. However, in the case of perishable goods, such as food, the ideal is for the calculation to be performed once a month, quarterly or half-yearly.
Important: to find out the value of the average stock volume, simply add the number of products in the initial stock to the number in the final stock and divide by 2.
Importance of inventory turnover
Inventory turnover plays a crucial role in organizations. Through it, it is possible to define a series of strategies that meet the profitability of the business.
Companies that correctly monitor inventory turnover can plan their purchases, define sales promotions and improve inventory management. By performing the calculation annually, or at other times, according to the profile of the merchandise stored, it is possible to achieve balance.
It is precisely this balance that will keep products in stock for the necessary time. In this way, the company avoids a series of obstacles, including high storage costs and excessive use of physical space.
Now that you know everything about inventory turnover, how about finding out How to avoid excess stock? This free material provides practical tips that will improve your company's financial health!
