Having considered the importance of relationship management and using your team’s knowledge to look behind the numbers, we’re going to consider the vital statistic for inventory health: stock turn. The rate at which your business turns its stock is a crucial indicator of its condition; the faster your stock turns, the healthier your business.
It’s easy to sell lots of products when you carry a lot of inventory. But that stock needs to be paid for and if it’s sitting in the warehouse as a safety net to cover your
service levels, it’s not making money. You are tying up valuable working capital and endangering your cash flow.
What’s not easy is minimising your stock holding to only the inventory you actually need and still achieving great sales. Running tight and holding just enough units to service current demand creates the risk of stock-outs, which leads to low service levels and negatively impacts on sales.
Operating in this way creates unnecessary stress and risk, there needs to be a balance between minimising stock levels and maximising service levels – increasing your stock turn can’t be achieved at the cost of fulfilling high service levels. This is where supply chain optimization is crucial.
Stock turn, or inventory turnover, can be measured in various ways but for simplicity let’s consider it as annualised sales divided by your average stock on hand. In practical terms:
If your business has annual sales of £5million and stock of £1million in the warehouse, your stock turn is 5.
There are a number of core competencies required to increase your stock turn:
In order to know what you need, you have to be able to turn previous sales figures into future plans. This requires the ability to spot seasonal fluctuations and proactively identify changes in patterns. This sounds simple in theory, but with thousands of products the process can quickly get out of hand. With service levels being so important, any weakness in forecasting then has to be covered by increased safety stock to reduce risk.
The ability to accurately forecast at item level is a prerequisite for healthy inventory and increased stock turn. Rather than relying on your team’s analysis of endless spreadsheets, let the AGR software cover this area – it will apply the appropriate sales forecasting methodologies to differing demand patterns and provide a far more focused picture for every product in your offering.
Have we mentioned the importance of service levels recently? This is more than just a question of having enough inventory – it’s about having the right stock at the right prices. If you don’t have the products a retailer is looking for, or if you don’t have them at prices that they want (that you can still make a healthy margin on) then you’ll miss out on sales and reduce your stock turn.
Having the right products available at the right price requires excellent relationships across the supply chain. You need to be working closely with your suppliers and have a strong awareness of what’s going on for your clients and what they need. This understanding can only be developed if your team have been freed from laborious tasks that can be automated using tools like AGR’s S&OP software. They will then have the time to maintain these all-important relationships and take care of inventory management, conducting regular reviews of the products available.
Elimination of old stock
All products will have their own life cycle – the key is to understanding what point of that pattern stock is sitting at. Items which are no longer serving the needs of the market must be removed and the product lines diversified with new, fresher inventory. The AGR S&OP software can deliver the quality information required to identify the patterns, but the innovative side of the process relies on the human knowledge and skills of your team.
With a clear picture of the demand for each item; the right products available at the right prices; and diversified and active product lines, you’ll see higher sales alongside increased stock turn: the perfect balance achieved with the help of the perfect tool.
Let us show you the impact that the AGR supply chain planning software can have on maximising your stock turn whilst maintaining high service levels. Get in touch today to see just how much of a difference it could be making to your inventory health.