At the heart of every successful business, are efficient management processes. One of the key processes is managing stock and inventory to ensure you know where your capital is tied up and what you can deliver and when for your customers. Below we've unpacked our top 5 tips inventory management secrets (sorry if it gets a bit nerdy, but we really love inventory management), that will help you create an algorithm for profitability and operational excellence.
#1 Inventory Turnover: Revolutionising Efficiency
Tip number 1 for inventory management success is the Inventory Turnover Ratio. It measures how quickly a business sells its entire inventory and replaces it over a given period. This helps assess the efficiency of inventory utilisation. A high turnover ratio suggests nimble inventory management, ensuring optimal cash flow and reduced carrying costs.
#2 Economic Order Quantity (EOQ): Balancing Cost and Demand
Finding the sweet spot between excessive inventory and stockouts is a perpetual challenge for businesses. EOQ empowers organisations to strike the right balance by calculating the optimal quantity to order. By considering carrying costs, ordering costs, and demand patterns, this calculation helps minimise inventory holding costs while meeting customer demands efficiently.
#3 Days Sales of Inventory (DSI): Mastering Cash Flow
Cash flow management is vital for the financial health of any business. DSI enables companies to gauge the number of days it takes to convert inventory into sales. By dividing the average inventory value by the cost of goods sold per day, organisations can identify inefficiencies, streamline operations, and optimise their cash flow.