What Is Inventory Turns?
Inventory turns, also known as stock turnover, measure how quickly a business sells its inventory. In the context of e-commerce, businesses can use inventory turns to gauge the efficiency of a company’s inventory management and identify improvement opportunities.
Significance of Inventory Turns
Inventory turns are essential for e-commerce businesses because they can help identify opportunities for improving efficiency and reducing company costs. Some of the key benefits of tracking inventory turns in e-commerce include the following:
Improving cash flow: High inventory turns can help businesses generate more cash by reducing the amount of money tied up in inventory. This can be especially important for e-commerce businesses, which may have limited storage space and need to invest in new inventory before selling their existing stock.
Reducing inventory holding costs: High inventory turns can help businesses reduce the costs associated with holding inventory, such as storage and insurance costs.
Prerequisites to Set Up Inventory Turns
E-commerce businesses should consider the following prerequisites to set up inventory turns:
Accurate and up-to-date inventory data: To track inventory turns, businesses need accurate and up-to-date information about their inventory levels. This includes the quantity and location of each item and its cost and value.
A system for tracking inventory movements: To calculate inventory turns, businesses need a way to track inventory activity, such as when it is received, used, or sold. Companies can do this manually or through an inventory management system.
Use Case of Inventory Turns
A small online retailer calculates its inventory turns by dividing COGS by average inventory. A lower-than-average turn rate could indicate a need to hold more stock. The retailer improves its inventory turns by identifying and reducing slow-moving products and adjusting forecasting and replenishment processes to align with demand patterns.