For your logistics, optimizing inventory turnover means keeping the ratio of goods used to average inventory as high as possible. The resulting low inventory levels not only save you storage costs, but also keep less capital tied up, which you can thus invest in marketing or personnel. Inventory turnover optimization, if done successfully, is a very effective improvement for large as well as small businesses. However, there are also a few implementation risks that you should pay attention to when addressing this issue.
Warehousing1 has therefore listed the top 5 approaches that you can use to improve your inventory handling performance, optimize your inventory levels and effectively save on warehousing costs.
Top 5 measures to optimize your inventory turnover
1. Classify your inventory according to the ABC principle
In the so-called abc-analysis you classify your stock items into categories A (80%), B (15%), C (5%) and D (0%) according to the proportion of your turnover. You can use the annual sales volume as a reliable indicator. In the case of new items, it is a good idea to compare them with items that are also new in order to ensure comparability. You should always have goods from your category A in stock, as these also account for the majority of your sales and you do not want to risk any delivery delays due to "out of stock".
2. Rely on accurate inventory forecasts
High data accuracy is essential in inventory planning. Can you access demand data to determine what your customers are actually ordering? Ensure that data is always updated so that even during seasonal sales peaks, there is always enough product in stock to meet your customers' demand. Instigate that existing inventory forecasts in the warehouse are improved, if necessary. If you use an external warehouse, ask your external logistics service provider about the most important warehouse KPIs, how he/she assesses them and how he/she plans to optimize them.
3. Increase the order frequency & decrease the order quantity
You can also keep your inventory low by reducing order quantities and placing orders more often. The advantage here is that their average storage capacity is kept low and you can effectively save on storage costs. However, to put this into practice, you also need to coordinate with your warehouse logistics specialist whether the warehouse can handle a more frequent ordering rhythm. Is there always enough staff on site to receive deliveries and store them according to type? Good data quality and thus reliable forecasts for your future customer orders are also absolutely essential in order to have sufficient goods in stock.
4. Reduce obsolete stocks
Every warehouse manager knows them: the notorious shelf keepers. Make sure that goods of your categories C and D (if available) are sold as long as possible. Keep in mind the best-before date of certain merchandise categories and the fact that certain seasonal items, such as gardening supplies, are not relevant for customers in the winter, for example. Dare to write off shelf keepers - which means one-time high costs, but can subsequently be offset by better stocking strategies. Or plan special sales to regain free storage space. You can then use these for revenue-generating items.
5. Improve interdepartmental communication
Often, a lack of communication between departments in your company also causes excess inventory. If each department focuses only on its own processes, inefficient supply chains can result. Work out an overall concept to minimize friction between departments and ensure your teams are working in harmony. External experts with an unbiased opinion are especially helpful in this matter.
There are numerous ways to optimize your own inventory turnover. When optimizing, pay attention to your entire supply chain and develop a company-wide strategy to prevent inefficiencies. To help you do this, we've also compiled the top 7 KPIs for your warehouse management, so you can't overlook any metric.
Inventory turnover significantly determines the average capital commitment in your warehouse. The higher the turnover rate of the goods in the warehouse, the lower the capital commitment on average. This, in turn, means more capital that you can actively use to increase customer loyalty to your brand. In addition, an optimized inventory turnover rate leads to a lower average inventory level, which results in lower storage costs. It is essential to strike a balance between keeping minimum inventory levels as low as possible while maintaining full delivery readiness. However, using modern ERPystems, it is now very easy to retrieve forecast and demand data for your items.
Do you have questions about how these approaches can be carried out at your company? Do you feel that your inventories have potential for optimization, but you lack the internal capacity or possibly the data quality to take the next steps? Let the experts help you. With Warehousing1 you can easily connect your warehouse software to your store system and get access to a central dashboard with all relevant analyses. Send us an inquiry now and one of our account managers will get back to you within 24 hours with an initial quote.