You don’t need to look further if you want a barometer to measure the performance of your company. Through your warehouse, you can easily measure your sales and their fluctuations. Combined with efficient inventory management, a retailer will be able to monitor the flow of goods and sales forecasting. This helps prevent under- and overstock of products and imbalance in demand and supply.
In determining the speed at which inventory is being replenished, owners use the so-called ‘turnover rate.’ You can compute it using the formula: Total (period X) Demand / Average Inventory.
But before that, you must first look for the “average inventory” which can be calculated using the formula: (Initial Stock + Final Stock) / 2.
Meanwhile, if you want to include the observed growth or decline over a longer time span when computing for the average inventory, the formula will change to: Average Stock (Monthly) = [ [ (S1+S2) / 2 ] * 3 months + [ (S3+S4) / 2 ] * 2 months + [ (S5+S6) / 2 ] * 2 months ] / 7 months.
Together, these variables will help prevent mistakes regarding your stock by giving you a summary of the inventory replacement rate at a particular time. You’ll know that a business is performing well if you have a high turnover rate. On the other hand, If it’s an overview of your inventory you want, what you need to look for is your coverage rate (CR).
Using it you will be able to focus your resources and supply more products on stores that have good performance. This prevents you from wasting stock on stores that don’t sell much.
You can compute the average stock inventory coverage using the formula: Average Stock per Month / Average Monthly Demand.
Using this and an efficient supply method, you can ensure that your supply flow will be on time and the stock shortage will be prevented.
Correctly calculating the indicators will enable the strengthening of supply chains and securing the right amount of stocked products. So you’ll be able to meet the demands with enough quantity at a specified period of time.
It is better to act now that you still got time that to struggle with troubleshooting later on. With a solution that’s capable of accurately and automatically tracking data in real-time, you’ll be able to determine your turnover and coverage rate early, so it will be easier to establish a resilient and stable supply chain.
This is the importance of inventory management software that many retailers don’t retailers. All these formulas don’t have to be written on a piece of paper anymore because tools are now existing to assist and make management more convenient.
To come up with the best business decisions, you should base on precise and up-to-date information regarding your warehouse stocks. This is a good start to develop a routine that will be useful as your business grows. If you have already done this by that time, expect that a bigger business won’t be so difficult to handle because you have already prepared for it.