While involved a recent CounterPoint demo, I was surprised to hear the question "What are "Turns" in inventory?" being raised.
Having a background in retailing, and decades of experience with Point of Sale and Inventory distribution systems, I sometimes forget that many businesses started out as small business that just grew over time. The business direction may have morphed over time, with senior staff people suddenly finding themselves involved in running a business that now has completely different focus than what they started years ago.
As an example, a mom and pop landscaping maintenance business… gets involved in retailing. This eventually leads into stocking and selling plants, rockeries, other gardening materials, tools, gift items and design services. Soon, the majority of their sales revenue comes from a retail store front, and the now have large inventory to contend with.
What are "Turns" of Inventory?
Despite how complicated some mathematical algorithms might show this, at it’s basically very simple…
Typically, "Turns of Inventory" are valued by either Quantity, Cost Value, or by Retail Value. A "Turn" of your inventory is basically what happens when you have completely sold out of all of your initial inventory for a given item.
The main idea is to buy less, more often, replacing your inventory only with what you have sold!
A good example, using "Quantity":
- Starting Inventory at the beginning of the month is: 100
- Ending Inventory at the end of the month is: 0
This is (1) one complete turn of your inventory based on sales at Quantity.
If I were to forecast this based on this months sales being consistent for (12) twelve full months, that would be a forecast of (12) turns of inventory for a total quantity sold of 1,200 for the year.
A bad example, using "Quantity":
- Starting Inventory at the beginning of the month is: 100
- Ending Inventory at the end of the month is: 92
This is 8 sold or .08 turns of my inventory based on sales at Quantity.
If I were to forecast this based on this months sales being consistent for (12) twelve months, that would be a forecast of .96 turns of inventory, for a total quantity sold of 96. Not quite a complete turn of my starting inventory in one year. This is a good example of being top heavy on an item. It is tying up my money, adding to my flooring costs, and increasing my inventory taxes. This would be a good indication of an item that I might want set a lower Min/Max quantity on, lower the price, or possibly include in a fire sale!
If you would like more information on how you can run a leaner inventory, and still adequately serve your customers, please contact the CCS Retail System Support Department.