“There are large savings as a result of optimizing inventory and improving inventory practices. Just by improving one turn, a typical wholesale-distributor can save hundreds of thousands of dollars!” That’s what the author of the article “Four Inventory Turns Per Year Doesn’t Cut It Anymore!” has to say on the topic of inventory turnover.
You don’t have to be a wholesaler-distributor to benefit from increasing your inventory turnover ratio. You can be a manufacturer, retailer or anything else, really. All of these businesses have to balance the amount of money they put into their inventory with the amount of money they need for other uses.
Author Howard Coleman lays out a strong case for increasing the number of times a business cycles through its inventory in a year. If you add just one more annual inventory turnover, you can save a lot of money on carrying costs and other expenses of storing inventory for a long period of time. You can also avoid problems, like spoilage and obsolescence.
It’s not all sunshine and roses, though. When you increase the number of inventory turnovers you complete each year, you also incur some costs and make the inventory management process more complex. Coleman names a few of these costs: “Increased transaction costs, more receiving, inspecting, put-away, maybe even having to pay more invoices.”
Many of these logistical challenges, such as receiving and putting away, can be handled with inventory management software. When a shipment arrives and needs to be received and stored, you can use barcodes and inventory management software to quickly add new products into your system and find out where to put them in your warehouse.
You’ll wind up paying more invoices and having higher delivery costs if you place more orders, but with fewer products each time. QuickBooks is a helpful tool to deal with the increase in invoices. You can work with suppliers to negotiate lower delivery costs by building long-term relationships with them.
Manufacturing inventory software can grow with your company, so that whether your needs are great or small, you can use the same software to handle all of your inventory management. It can also help you find your optimal amount of inventory to keep on hand so that you can increase your inventory turnover ratio and start saving money.
QuickBooks Manufacturing Blog 