“One of the great responsibilities that I have is to manage my (inventory) assets wisely, so that they create value.”
Alice Walton – Walmart -which redefined Retail Inventory Management
In our experience of working with multiple retailers across India and Dubai, a common question asked is “What are the benefits of implementing retail inventory management systems?”
Few retailers, bothered about the age old stocks or turnaround inefficiencies when in the past, profits have typically come from increases in the price of gold.
Businessdictionary.com defines Stock turn as – Number of times a firm’s investment in inventory is recouped during an accounting period.
Why is inventory management important?
Over 60 % of total investment in a retail business is inventory, making inventory management critical to the business profits.
Retail Gurukul question: What is your current stock turnaround and how much has it improved over the earlier years?
Retailer answers: – “I don’t know.”
In such circumstances, “What cannot be measured cannot be improved and what can be measured, can be improved.”
Step #1- Use two or three year data
If data is available, what is your stock turnaround? A good starting point is to calculate the stock turnaround over the last 2 years or more depending on the available data.
Step #2- Challenges when data is not available
If data is not available, then your sales books, billing software, and vendor purchases are the starting points. Take into consideration the peak months of Akshaya Tritiya, Diwali and low months post such festive periods. While the data may not be accurate, even an approximate information is better than waiting for the perfect and 100 % data to become available.
Based on this information, calculate the stock turnaround for the past year and also pro-rate them for month-on-month performance.
Step #3- The correct formula to calculate stock rotation
Stock Turn = (Total sales over a period in kgs or Carats) divided by (average stock of the product for that period*)
Stock Turn = (Total Sales over the past 12 months) divided by (average month end stock of each of the 12 months)
*A common error in calculating the stock turnaround is taking the cumulative sales so far and dividing by the current inventory.
This can skew the results in months where the inventory was higher or lower.
Step #4- What next?
Compare the results separately for different categories of products.
Step #5- What are the possibilities to improve the stock turn?
Improving sales and optimizing the inventory are the next steps.
- Can you list out at least 5 steps in either increasing sales and optimizing your current inventory?
Ex. How often do you buy? Is there a pattern to it?
To help you with some comparisons, we know a few jewellers who do a stock turn of 2 in plain gold jewellery and we know there are jewellers who do 6 or 7 stock turns too.
- Do you want significant impact on your business?
What is your current turn and how can you improve it is probably more important than wondering why someone is doing so bad or how someone else is doing so well. If significant improvement is what you want, we are here to help.
Call us on 9036036524 or fill the enquiry form for a free 30 minute evaluation of your business by our Retail Guru Shivaram ji.