How do you measure and improve inventory turnover and accuracy in your warehouse?

1 Inventory turnover

Inventory turnover is a ratio that measures how often you sell and replace your inventory in a given period. It indicates how well you are managing your inventory levels and matching them to customer demand. A high inventory turnover means you are selling your products quickly and efficiently, while a low inventory turnover means you have excess or obsolete inventory that ties up your cash and space. To calculate your inventory turnover, divide your cost of goods sold (COGS) by your average inventory value. You can use your annual, quarterly, or monthly data, depending on your business cycle and seasonality. The higher the ratio, the better your inventory performance.

To improve your inventory turnover, you need to balance your supply and demand. You can use various methods and tools to forecast your customer demand, such as historical sales data, market trends, customer feedback, and seasonal patterns. Based on your demand forecast, you can adjust your inventory levels accordingly, and avoid overstocking or understocking. You can also use inventory management software to automate your ordering and replenishment processes, and set optimal reorder points and quantities. Additionally, you can implement inventory reduction strategies, such as discounts, promotions, or clearance sales, to get rid of slow-moving or obsolete items and free up your warehouse space.

2 Inventory accuracy

Inventory accuracy is a measure of how well your physical inventory matches your records in your inventory system. It reflects how reliable and up-to-date your inventory data is, and how well you are tracking and controlling your inventory movements. A high inventory accuracy means you have a clear and accurate view of your inventory situation, while a low inventory accuracy means you have discrepancies or errors that can cause inventory shrinkage, stockouts, or customer complaints. To calculate your inventory accuracy, divide the number of items that match your records by the total number of items counted in your physical inventory. You can express it as a percentage or a fraction. The closer the ratio is to 100% or 1, the better your inventory accuracy.

To improve your inventory accuracy, you need to implement regular and systematic inventory audits and reconciliations. You can use different methods and frequencies of inventory counting, such as cycle counting, annual counting, or spot checking, depending on your inventory size, complexity, and risk. You can also use inventory management software to track your inventory transactions and movements in real time, and generate reports and alerts for any discrepancies or anomalies. Additionally, you can standardize your inventory procedures and policies, and train your staff on how to handle, label, and record your inventory items correctly and consistently.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?