Every business makes efforts to manage its inventory. How can they know their efforts are going in the right direction? Is it really important in the wholesale business? These are really important and difficult questions.
In this article, we are going to give you a strategy to
measure the performance of warehouse inventory management. We are sure, after reading
this article, you can easily find answers to the following questions.
●
How effectively is your marketing
department working?
●
Has your wholesale business achieved
the sales target?
●
Is there any need to change the
methods of inventory management?
●
Which area of work needs to
improve?
● How to achieve the optimum utilization of resources?
And many others.
If you want to measure your inventory management performance,
use the following methods.
●
Inventory Turnover
At first, we suggest you use this method for your wholesale business. In this method, you have to divide the cost of goods sold in a year by the average cost of inventory. It should be between 5 to 10 times.
That means you sell and restock your inventory every 1-2 months. The lower inventory turnover ratios tell that your wholesale business is not selling well.
Businesses have to bear the higher carry cost of
inventory. It is a good way to measure inventory sales performance. Let’s move
on to the second one.
●
Inactive Stock
Inactive stock is the stock in the wholesale business that has to write off due to any reason. The reasons include spoilage, damage, or theft. We will explain to you the reason why it has negative effects on the business.
As the wholesale business spends on inventory in the
purchase, ordering, and storing These costs also added to the cost of goods
sold that lowers the profit of the business.
●
Average Days to Sell Stock
It is also an effective method to know how many days the business sells its inventory. To calculate the average day, divide the inventory by the cost of sold goods and multiply it by days of the year. This affects both sales and carries the cost factors.
A business goes for a strong marketing strategy to improve
sales. To reduce the carry cost, a business can change its buying stock
strategy.
●
Storing Cost
Wholesale business deals in huge volume inventories. That
means they are spending on a huge amount of inventory. It includes the
following costs
●
Ordering cost
●
Insurance cost
●
Warehouse
●
Security cost
●
Maintainance cost
● Equipment Cost
Here the most important thing is to evaluate the exact
costing of inventory storage. It is necessary to know where a business is
spending and then a strategy can be planned to control this cost.
●
Stockout
Here is another way to check inventory performance. That is stockouts frequency. This means how many times wholesale businesses make orders without having safety stock. To calculate the stock-outs ratio simply divide the total stock-outs in the year by annual sales volume.
●
Order Cycle Time
We have another effective method to analyze the performance of inventory. Order cycle time is the amount of time it takes from placing an order to receiving the order. Basically, it is calculated to measure the performance of the inventory management software and supply chain department.
We have discussed all the basic techniques that help to analyze the performance of inventory management. Honestly speaking, it is not easy to keep these all measures without having an inventory system. You can choose the system of your choice. There are hundreds of options on the internet. Pick one and analyze your inventories well to help you grow your business.