![]() Still, a retailer’s ability to consistently turn stock on hand into cash will impact other areas of business. This is especially true of smaller businesses without formal or automated inventory management processes. It conjures flashbacks to the days of analog when retailers and accountants would calculate everything by hand, using paper, pen, and massive ledgers. Why is inventory turnover important?įor whatever reason, inventory turnover is one of those calculations that gives retailers the heebie-jeebies. ![]() NOTE: Usually, COGS and average inventory are taken over the same twelve-month period, though some retailers will calculate inventory turnover more frequently. For example, a turnover ratio of 4 means your inventory turnover period lapses every 91 or so days (365/4). ![]() The resulting rate will give you the number of times that you turn over inventory in a given time period, which can be converted to days. To calculate your inventory turnover rate, divide your cost of goods sold (sometimes called Cost of Sales or Cost of Revenue) by your average inventory. *You have some left over shirts from the year prior still so we need to account for that cost (5 remain at $5 per item). Let’s see how much you sold this year and how much is remaining … Ending Inventory So you now have $1,000 in total cost of inventory. We buy more when it’s cheaper and buy less when it’s more expensive. *Your cost per item will never be static (wouldn’t that be nice!), so let’s have some fun with that too and take that into consideration. Throughout the year you bought a couple more items … Bought Inventory You started 2019 with 50 pieces of inventory (to keep things simple): 20 shirts, 10 pairs of jeans, 10 pairs of shoes, 5 sweaters, and 5 really- bitchin-sunglasses. Dashboards can be critical in this regard.Related: Shopify inventory best practices Once you have established benchmarks and targets for Inventory Turnover, you’ll want to establish processes for monitoring this and other supply chain KPIs. Monitoring Supply Chain KPIs on a Dashboard A high inventory turn rate compared to industry norms.Cash-to-Cash Cycle Time: The time between when a business pays its suppliers and when the business receives payment from its customers.Use the following equation: 365 ÷ inventory turn ![]()
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