Understanding the Measurements of Your Inventory Turnover

Michelle Jaco9/16/2019

Benefits of Inventory Management Software

Business management software offers even more significant utility when used in concert with other software applications. This is true because your systems become automated, and there is a vast amount of apps that can be utilized to do so. However, this is a topic of discussion for another day.

For now, let's focus on the benefits these applications can bring.
Arrange business information in a user-friendly manner - Business management software is used to store information in a convenient manner such that it becomes easier to increase productivity. Therefore, records are logged electronically and in a more organized manner.

Enable ubiquitous access to information - Functional software programs can be accessed from any physical address, as information and records are stored in the cloud.

Cost Savings - Business software eases various processes within several businesses. As a result, there is a significantly reduced amount of time and effort that will be saved in the process. This amounts cumulatively increases after a certain period.

Centralized information processing - Information collected and processed using management software enables easy access to information because it is organized in a single point of access.

Enable swift decision making - Management software is designed using great algorithms that ease up the decision-making process of individuals.

We will indulge deeper into inventory turnover software, but first, it's imperative that we are all on the same page. This is for those who do not know much about what inventory turnover is or what its customized software entails.

What is Inventory Turnover?

By definition, inventory turnover refers to the number of times that a business can sell its products and restock within a certain period. Inventory turnover will help you to determine how fast goods and services can sell.

To calculate the inventory turnover of your company, you begin by dividing the number of days within this time to get the count of the precise number of days consumed to sell a certain quantity of stock. This figure is what is used to establish your businesses' turnover ratio.

A low turnover ratio implies that a business has weak sales while a high one has two alternate causes.

It may indicate that your business is either making a high number of sales or your business often has an insufficient amount of stock available at a given period.

Inventory management is part of business accounting that plays a salient role in the many business establishments in existence.

Here are the reasons why you need to calculate this ratio in your line of business.

Benefits of Proper Turnover Ratio to Businesses

1. Metric Tool
The turnover ratio of business shows how fast its goods can be sold within a certain time frame. The level of the turnover ratio is used to show the levels of sales made by a company. This ratio can provide succinct details regarding the progress a business can make over this period.

If the level of turnover is low, it means that products are moving slower than you may have anticipated. This occurrence reduces the rate of success of your business.

The rationale behind this is because of the fact that if a product spends a significant amount of time without being sold, it will increase its withholding cost.

Additionally, customers might reduce in number if most of your products have been present for an extended period. They prefer new products. If these additional inconveniences are not terminated, they will negatively impact the performance of your business.

2. Decision Making
The imperative role played by good decision making is apparent in every single organization, but these decisions vary in nature.

For instance, some are more complicated and hence need more mental input, as some are more frequently made than others, etc.

Inventory turnover management applications can be customized to be used in decision-making processes.

For instance; identify the rate of sale of each product to take necessary remedial actions in addition to the calculation of sales forecasts based on the past sales performance of your business.

3. Increase Accountability of Information
Inventory turnover management applications collect data using the point of sales.

This information is sent to the cloud for storage. The data collected in this process is free from human error and manipulation.

Therefore, this will ensure that all the intelligence generated for business decision making is accurate. This will also help the managers of business come up with more succinct solutions to the diverse issues that emanate day by day.

4. Management of Dead Stock
Turnover ratio plays a vital role in the management of businesses whose stock goes bad quickly.

As we all know, the profitability of the businesses that deal with perishable goods depends on how fast these products sell.

Examples of such businesses are retail stores dealing with food products such as eggs, milk, fresh produce, horticultural companies, among many others.

If such products go bad while in stock, they can no longer be sold, hence the name dead stock. It is a better decision to invest in inventory management software to avoid such potential threats.

5. Safeguard Investment
There is a significant amount of money invested to purchase the stock of your business.

This figure, of course, varies by the size and nature of your business. You need to safeguard your initial investment and maximize the chances of its ability to generate revenue and sustain the growth of your business.

Inventory management software helps you to achieve this with ease, as inventory management software helps to capture data and manipulate it into useful intelligence.

This intelligence is later used to know how the business is fairing and take remedial action if required. This will help to eliminate a considerable amount of risk from your investment. All data calculated by this inventory management application is accurate which gives you peace of mind.

6. Can Be Used as a Sales Guideline
When collected data is manipulated into useful information, the end product can be used to take the necessary remedial action.

Basically, the end product in this context refers to the sales turnover ratio. The only thing you need to do as a manager is to make a wise decision to adapt to the situation at hand.

Let me use an illustration of how inventory management software can be used as a guideline.

If you realized that the sales turnover of milk in your restaurant is relatively low, you will query why the situation is so. Maybe it's because of the brand, packaging, lifestyle choices in the area, etc.

Whatever the reason may be, utilizing inventory management applications will put you in a better position to identify what is wrong and adapt to the situation and avert losses.

Businesses that deal with perishable goods should really pay attention to this utility.

7. Provides Correct & Accurate Information
Computer applications have a competitive edge over humans. One of the ways these applications are better than humans is because they are free of errors.

Unlike computers, humans are prone to error. You can never tell how much damage can be caused by a single error. It is better to invest in quality inventory turnover management software.