How To Improve Inventory Turnover Rate Essay

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Inventory turnover is a measure of the number of times that inventory converts to sales in a period. The formula is cost of goods sold divided by the average investment in inventory for the period. Generally, the faster the products sell, the better and more efficient is the inventory operation. The higher the inventory turnover is, the less of a financial investment you need to put into inventory to keep the operation running. If you have challenges in this area, devise a strategy to improve your inventory turnover rate by either increasing goods sold or decreasing your investment.
Step 1
Increase demand for the product line by working with your marketing team. Focus advertisements to locations frequented by a majority of your target market. Offer a sales promotion -- such as a buy-one, get-one-half-off special -- to increase the amount of inventory that leaves the warehouse in a given period of time.
Step 2
Set a better overall price for the products to increase demand, which in turn boosts sales and inventory turnover. Either establish a temporary discount or set a more permanent lower price for slow-selling merchandise.
Step 3
Call distributors to seek a better price for the products or materials you buy, to reduce your inventory investment.
Step 4
Focus on buying only products that sell consistently. Sometimes a few products take a long time to sell, while others fly off the shelves; the slow movers drag down your overall inventory turnover rate.
Step 5
Reduce the amount of inventory that you purchase at one time. For instance, instead of buying $1,000 worth of product, purchase $250 worth; sell the purchased amount, then order another $250. Using this strategy, you use the amount that you earned from selling that first $250 worth of product to purchase more inventory, instead of investing additional money from your coffers. Keep recycling the same investment, which keeps the average investment low.

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