How to improve inventory turnover
Inventory turnover is a difficult challenge to broach, as low turnover means merchants may be overstocking and their goods are obsolete. Conversely, high turnover rates may lead to inadequate inventory levels and loss of business. Retailers need to find ways to achieve an even ground between the two in order to maximize their profits while minimizing dollars spent on merchandise.
In recent years, new eCommerce systems and solutions have been developed that grant merchants more control over this process. The right solutions can tie inventory management and purchasing together to help retailers improve inventory turnover.
So, what steps can merchants take to improve inventory turnover?
1. Buy more frequently with automated purchasing and receiving
When you buy less frequently you increase the amount of time between when the merchandise arrives and when you expect to sell it. For example, if you buy inventory in bulk at the beginning of the season, a consumer may visit your site 3 times and see the same product twice before they purchase. To the average consumer, the value of that product goes down every time they see it and don’t purchase. This is called stale inventory.
Instead, merchants should buy more frequently, with the help of automated purchasing and supplier management software, to increase the value of the product and in turn, improve inventory turnover. When inventory levels of a popular item decreases, retailers can use inventory thresholds to trigger a purchase order to be automatically created with specific reorder rules. Knowing what your inventory thresholds and reorder units need to be is key to ensuring inventory is not depleted by the time the purchase order is received.
2. Do not over-buy
One of the biggest challenges many retailers face regarding turnover is over-buying. There is a temptation to purchase inventory in bulk, as retailers often receive discounts from suppliers and manufacturers for doing so. However, this can lead to huge problems with overstocking in the long haul. Goods eventually become outdated, resulting in lower profit margins or even losses as merchants are forced to liquidate these goods.
Because demand can fluctuate throughout the year, inventory management software can help merchants avoid over-buying by identifying sales trends and cost margins. The more a retailer can accurately forecast inventory levels throughout the year, the more prepared he/she will be to purchase the right amount of inventory for the season.
3. Avoid discounting products heavily
As Hurlbut & Associates noted, one of the biggest mistakes retailers make when trying to improve their inventory turnover is heavy discounting. Perhaps a retailer needs to offload slow-moving stock or seasonal items after the time frame for buying has expired. Although discounting products can get more people shopping, it also negatively affects profit margins and the perceived value of the goods you are selling. Retailers can avoid this problem by purchasing product as it is needed.