increasing inventory turnover

The success of every retail business hinges upon inventory management. Building greater efficiency with inventory has a direct effect on sales and cash flow—two crucial areas for any business.

Inventory Turnover Ratio

Retailers need to first look at their inventory turnover rate. If it is slow, they should look for any weaknesses in their inventory management best practices to correct them. How can you tell when inventory turnover is slow? Simply calculate your turnover ratio using historical sales and inventory data pulled from your point of sale software. Efficient and effective turnover of inventory will optimize cash flow, while meeting demand.

What is a good ratio versus a bad one? Many trade associations and research companies provide industry specific turnover ratios, because every industry has different market conditions and concerns. For retailers dealing in non-perishable goods, a low ratio means that you have more money tied up in inventory and the potential for more products to become obsolete.

Inventory Management Tips

If you have a low turnover ratio, we have compiled a list of 7 tips to help you build operational efficiencies and customer demand.

1. Forecasting.

To keep a finger on the pulse of what your customers want and when they want it takes research into industry news and trends. You should also ask for their input, providing them with brief surveys that can help you keep the things they want in stock. You will want to look at seasonal trends to keep pace with high demand.

2. Delivery costs and speed.

Increasing delivery speed encompasses vendors and customers. If your vendors can ship product quickly, then you’ll need fewer items in the warehouse. This requires some negotiating with them, so leverage your relationship to find how you can cut down on time in transit.

3. Discriminate between fast and slow movers.

Look at your sales data to reduce the number of products that don’t sell while increasing inventory of the ones that do.

4. Increase demand.

Step up your online marketing to generate more demand on new or promotional products. Frequency is the key, so keep on top of it. You may also want to look at better pricing to remain competitive and profitable.

5. Prioritize merchandize.

Not all items are equal, so it’s important to rotate them for seasonal demand and bestsellers. This includes display and warehousing strategies.

6. Automate order processing.

To save time and reduce errors, set up your point of sale system to automatically send POs when stock levels are low.

7. Create and update stocking policies.

These policies can reduce inventory shrinkage, while increasing operational productivity. Best of all, this is an area where employees can have a major impact on these policies, so bring them in on the process to give them a feeling of ownership and responsibility.

Optimizing Your Inventory

Inventory management depends upon accurate financial projections that come from sales data and documentation of vendor relationships. These are easily found in your point of sale software. The key here is to become better organized and have all of the information you need at your fingertips. This will ensure a more nimble response to handling problems with your inventory.