Back To Basics: Inventory Turnover Breakthrough

When managing inventory and finding ways to improve turnover, entrepreneurs often push sales and products without examining the big picture. To boost your turnover and get the most out of your inventory, you must understand your supply chain as a whole. Many factors contribute to your inventory turnover. They can’t always be understood in isolation—rather, you need to see them as something that contributes to the whole.
This approach works for companies both big and small, as well as businesses with only one supplier and client, or several across different industries. If you can understand the full supply chain and how each section impacts the other, you can boost your inventory turnover, enhance your success rate, and improve sales.

Steps To Reach Your Breakthrough

The key is to start with an overarching view of the full system from start to finish. From there, you can break it down into various departments and operations. However, you need to always refer back to the big picture so that you can understand the impact of the small cogs in the machine. These steps outline what you need to do to reach the all-important breakthrough point:

1. Assess The Supply Chain From Start to Finish

An effective supply chain is all about supply and demand. However, it’s impossible to plan for this properly if you don’t understand the workings of the entire chain. Whether you’re the middleman who just holds stock or you manufacture products from raw materials, you need to examine each step in minute detail.

Look at who supplies what and where it goes from there; follow along with this process until it reaches the end-user. You can look at the numbers or quantities of items, how often products or components get shipped, or how long they are stored. Getting to know the general flow and pace of the supply chain can help you plan your timings and quantities within the process.

2. Evaluate All Operating Terms

No inventory business can operate without its suppliers and customers. You need to look at these relationships more like partnerships. As such, these stakeholders need to be on your side to keep the supply chain moving and your inventory turning over. Most entrepreneurs look at the price as the main sticking point in whether they should partner with a supplier or not. However, there are several other places you should be looking too.

Factors like lead times on orders and minimum order quantities can have a massive impact on your inventory turnover. If you need to place orders several months in advance, or place big orders to get the best price, you might be sitting with an excess of stock. Another possibility is that you may be waiting a long time to get inventory in if you run out. The best scenario for your business is a supplier who offers flexible order sizes and has little to no lead time.

You should also consider areas like customer service when it comes to returns on damaged items, or if you have a surplus of goods you can’t sell. How much you can customize your order and the items you order both play a major role in your inventory management.

3. Assess Your Inventory Ordering And Storing

Your company’s specific role in this supply chain will impact this point. For those who manufacture a product, you need to consider your raw materials and your works in progress. The timings on ordering and receiving your raw materials will affect how quickly you can manufacture items. In addition, you need to take items being manufactured and the raw materials you have available into account when looking at your entire inventory and turnover rate. For companies that simply store and sell an already made product, you’ll have a much clearer idea of what exactly your stock is and how quickly you can sell it or acquire more goods to sell.
Having an accurate number of how much stock you’re holding, as well as how quickly you can increase that number, will help you with selling to your customer. This will allow you to react quickly and effectively when it comes to the demands of your customers, who can sometimes get angry or upset if you don’t appear to hold enough stock for their usual needs.

4. Manage Your Excess And Obsolete Inventory

Inventory that you can’t sell-off is a dead weight to any business. It has cost you money to acquire and manufacture, and continues to cost you money to store. Unfortunately, it’s all part of doing business. It’s unlikely that you’ll never find yourself in a situation where you have excess stock that’s obsolete, regardless of how good your inventory management is.

When you understand your supply chain, you can certainly minimize your levels of excess and obsolete stock—more on this in the next point. Additionally, you’ll be able to spot this inventory fairly quickly so that you can offload it or write it off before it costs you too much in storage space and associated costs.

5. Plan For Supply And Demand

Now that you have a solid overview of the supply chain and where you fit into it, you can make far more accurate forecasts about funding you require , products you can acquire, how quickly you can obtain them, and how you’ll sell them on to your customers. Added to this information, you also need to research your industry to see what kind of numbers your customers need.

Remember, a forecast is still only an estimate. You can base it on as much historical fact and research as possible. However, your actual numbers will usually vary somewhat from what you initially predicted. This is when solid partnerships with suppliers will count in your favor. They will be more willing to help you if you need more stock or want to slow your order rate as customers decline.

This topic is one that every entrepreneur who works with supply chains and inventory will be familiar with. As previously explained, going back to basics is the key to success and makes that breakthrough so much easier.

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