{"id":1175,"date":"2019-10-01T10:18:54","date_gmt":"2019-10-01T17:18:54","guid":{"rendered":"https:\/\/www.logiwa.com\/?p=1175"},"modified":"2025-05-02T05:23:45","modified_gmt":"2025-05-02T12:23:45","slug":"calculate-inventory-turnover-ratio","status":"publish","type":"post","link":"https:\/\/www.logiwa.com\/blog\/calculate-inventory-turnover-ratio","title":{"rendered":"Inventory Turnover Ratio Impact on Warehouse Management"},"content":{"rendered":"<p>[et_pb_section fb_built=&#8221;1&#8243; admin_label=&#8221;section&#8221; _builder_version=&#8221;4.16&#8243; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_row admin_label=&#8221;row&#8221; _builder_version=&#8221;4.16&#8243; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; width=&#8221;auto&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.16&#8243; custom_padding=&#8221;|||&#8221; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_text ul_item_indent=&#8221;30px&#8221; admin_label=&#8221;Text&#8221; _builder_version=&#8221;4.22.2&#8243; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;]In this article, we&#8217;ll guide you through understanding the significance of the inventory turnover ratio and its impact on warehouse management. By the end, you&#8217;ll have a clear grasp of how to calculate this ratio, its implications for your business, and strategies to optimize it for better warehouse efficiency.<\/p>\n<p><strong>Key Takeaways:<\/strong><\/p>\n<ul>\n<li>Inventory turnover ratio indicates how quickly a company converts its inventory into sales.<\/li>\n<li>A high inventory turnover ratio can signify efficient sales or insufficient inventory, while a low ratio might indicate sluggish sales or excess stock.<\/li>\n<li>Efficient warehouse management processes, including optimal picking methods and path optimization, can positively influence the inventory turnover ratio.<\/li>\n<li>It&#8217;s essential to compare your inventory turnover ratio to industry benchmarks rather than a general standard.<\/li>\n<li>The inventory turnover ratio serves as a reflection of a business&#8217;s health and is crucial for investors and potential financiers.<br \/>\n<!-- Table of Contents --><!--more--><\/li>\n<\/ul>\n<div class=\"blog-toc\">\n<p>Contents<\/p>\n<ul>\n<li><a href=\"#1\" rel=\"noopener\">What Is Turn Over Rate and Why Is It Important?<\/a><\/li>\n<li><a href=\"#2\" rel=\"noopener\">How To Calculate Inventory Turnover<\/a><\/li>\n<li><a href=\"#3\" rel=\"noopener\">Is Your Inventory Turnover Ratio High or Low?<\/a>\n<ul>\n<li><a href=\"#4\" rel=\"noopener\">What does a low inventory turnover ratio mean?<\/a><\/li>\n<li><a href=\"#5\" rel=\"noopener\">What does a high inventory turnover ratio mean?<\/a><\/li>\n<\/ul>\n<\/li>\n<li><a href=\"#6\" rel=\"noopener\">How To Correct Poor Inventory Turnover Ratios<\/a><\/li>\n<li><a href=\"#7\" rel=\"noopener\">How Warehouse Management Processes Affect Inventory Turnover<\/a><\/li>\n<li><a href=\"#8\" rel=\"noopener\">Use the Right Picking Method<\/a><\/li>\n<li><a href=\"#9\" rel=\"noopener\">Pick Path and Putaway Path Optimization Through Algorithms<\/a><\/li>\n<li><a href=\"#10\" rel=\"noopener\">Inventory Turnover Ratio is a Sign Of A Business\u2019s Health, So Be Mindful!<\/a><\/li>\n<li><a href=\"#11\" rel=\"noopener\">Harnessing the Inventory Turnover Ratio for Better Business Efficiency<\/a><\/li>\n<li><a href=\"#12\" rel=\"noopener\">FAQs: Inventory Turnover Ratio<\/a><\/li>\n<\/ul>\n<\/div>\n<p>A business that understands its inventory turnover ratio makes smarter decisions across the supply chain. With clear inventory insights, you can competitively price your products without cutting into profits, bring efficiency into your manufacturing processes, streamline your warehouse management efforts, and predict when to order more goods more accurately.<\/p>\n<p><!--more--><\/p>\n<p>What is turn over rate? In this article, we will break down how your warehouse can accurately determine your inventory turnover. We\u2019ll start off by helping you identify the data you need to carry out this calculation. Once you have your figures, we\u2019ll break down what they mean and how you can use them to re-evaluate your existing processes, including your picking and packing methods, your <a href=\"\/blog\/picking-path-optimization-algorithm\" rel=\"noopener\">warehouse picking paths<\/a>, and more.<\/p>\n<p>Let\u2019s get started.<\/p>\n<p><!-- In-Page Optin Box --><\/p>\n<p class=\"in-content-optin\"><strong>BONUS:<\/strong> Before you read further, download our Whitepaper to see <a href=\"\/resources\/whitepapers\/warehouse-management-software-whitepaper\" target=\"_blank\" rel=\"noopener\">how Logiwa uses real-time data to help you get up to 100% inventory accuracy and execute advanced fulfillment strategies like wave planning.<\/a><\/p>\n<h2 id=\"1\">What Is Turn Over Rate and Why Is It Important?<\/h2>\n<p>Inventory turnover <a href=\"https:\/\/www.investopedia.com\/terms\/i\/inventoryturnover.asp\" target=\"_blank\" rel=\"noopener\">shows how many products a company has sold and replaced<\/a> over a specific period of time. In other words, it\u2019s how quickly a company transforms its inventory into sales. Most companies express inventory turnover as a ratio.<\/p>\n<h3 id=\"2\">How To Calculate Inventory Turnover<\/h3>\n<p>There are <a href=\"https:\/\/www.investopedia.com\/terms\/i\/inventoryturnover.asp\" target=\"_blank\" rel=\"noopener\">two different methods for calculating<\/a> inventory turnover:<\/p>\n<ol>\n<li>Divide sales by your average inventory<\/li>\n<li>Divide cost of goods sold (COGS) by your average inventory<\/li>\n<\/ol>\n<p>Let\u2019s quickly take stock of the data we need to run an inventory turnover formula.<\/p>\n<table style=\"border-width: 1px; border-style: solid;\">\n<tbody>\n<tr>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\"><strong>Variable<\/strong><\/td>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\"><strong>Description<\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Time period<\/td>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">For the purposes of this exercise, we\u2019ll assume our time period is 1 year.<\/p>\n<ul>\n<li>Example variable: 1 year<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Sales<\/td>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">This is the dollar figure of all your sales over one year. Keep in mind that this is sales revenue, not cash flow. If you\u2019ve sold an item, but haven\u2019t received payment yet, you would still include the dollar value of the sale in your annual sales figure.<\/p>\n<ul>\n<li>Example variable: $1 million<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Cost of goods sold<\/td>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">This is exactly what it sounds like: the <i>cost <\/i>of the goods you sold. Your sales figure is the <i>price <\/i>of goods sold. In other words, your sales figures include a markup. Some companies prefer to use the cost of goods sold because it provides a number that\u2019s more reflective of reality. Some argue that inventory turnover formula calculated using sales revenue results in an inflated number.<\/p>\n<ul>\n<li>Example variable: $625,000<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<tr>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Average inventory<\/td>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Find your average inventory by adding your starting inventory (at the beginning of the year, in this case) to your finishing inventory (at the end of the year, in this case) and then dividing it by 2.<\/p>\n<ul>\n<li>Example variable: 1,000 units \/ 2<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Analysts use inventory turnover to assess your company\u2019s health relative to its industry peers. It shows how quickly your company is selling goods, and analysts can use industry benchmarks to see whether you\u2019re under- or over-performing.<\/p>\n<h3 id=\"3\">Is Your Inventory Turnover Ratio High or Low?<\/h3>\n<p>How do you know whether your inventory turnover rate is low or high? The short answer: It depends on your industry. For instance, a luxury goods business will have a low turnover rate in general, but a high turnover rate in terms of its industry. Why? Because luxury goods retailers sell a lower volume of goods, but at a higher price and with higher mark-ups. For their industry, a low turnover rate is acceptable.<\/p>\n<p>So, keep in mind that there is no \u201cgeneral\u201d inventory turnover rate that you should meet. Rather, you should compare your inventory turnover ratio to <a href=\"https:\/\/www.readyratios.com\/sec\/ratio\/inventory-turnover\/\" target=\"_blank\" rel=\"noopener\">industry benchmarks<\/a>.<\/p>\n<h3 id=\"4\">What does a low inventory turnover ratio mean?<\/h3>\n<p>A low inventory turnover ratio points to <a href=\"https:\/\/www.investopedia.com\/terms\/i\/inventoryturnover.asp\" target=\"_blank\" rel=\"noopener\">two big potential issues<\/a>:<\/p>\n<ul>\n<li>Sluggish sales<\/li>\n<li>Excess stock<\/li>\n<\/ul>\n<p>Low turnover is a sign that your goods aren\u2019t selling quickly enough or that you aren\u2019t marketing them effectively. It could also point to issues in your management. If your goods aren\u2019t getting to customers on time or in the right quantities, your reverse supply chain (returns) may be having a negative impact on your inventory turnover ratio.<\/p>\n<h3 id=\"5\">What does a high inventory turnover ratio mean?<\/h3>\n<p>Interestingly, a <a href=\"https:\/\/www.investopedia.com\/terms\/i\/inventoryturnover.asp\" target=\"_blank\" rel=\"noopener\">high inventory turnover ratio can be a good or a bad sign<\/a>, depending on the context.<\/p>\n<p>In most cases, it\u2019s a good sign. It means you\u2019re moving products and bringing in revenue. Your stock isn\u2019t sitting on shelves at the risk of theft, damage, loss, spoilage, or obsolescence.<\/p>\n<p>On the other hand, a high turnover rate may point to insufficient inventory. If you\u2019re burning through inventory at a rapid pace, it could be a sign that you\u2019re missing out on additional sales opportunities.<\/p>\n<p>A high turnover rate also presents the risk of stockouts down the road. Stockout events diminish customer loyalty, potentially jeopardizing your future inventory turnover rates as your customers move to other retailers.<\/p>\n<h2 id=\"6\">How To Correct Poor Inventory Turnover Ratios<\/h2>\n<h3>Revisit Your Safety Stock Formula<\/h3>\n<p>As described above, what exactly constitutes a \u201csub-optimal\u201d inventory turnover ratio depends on the context. If you have high inventory turnover levels because of inefficient inventory, it\u2019s a sign that you need to revisit your <a href=\"\/blog\/stock-and-inventory-replenishment\">safety stock replenishment strategy<\/a> and that means thinking about your <a href=\"\/blog\/safety-stock\" target=\"_blank\" rel=\"noopener\">safety stock formula<\/a>.<\/p>\n<p>In fact, thinking about your safety stock formula also addresses excess inventory issues, which leads to a lower inventory ratio down the road.<\/p>\n<p>Business owners often rely on gut feelings to determine inventory <a href=\"\/blog\/reorder-point-formula\" rel=\"noopener\">reorder points<\/a>. However, if you want a sustainable, scalable business, you\u2019ll need to take a data-driven approach. There are several variations of the safety stock formula, and you may even have software that has this functionality built-in. If not, use this simple formula as a starting point:<\/p>\n<p><!-- Callout Box --><\/p>\n<div class=\"blog-callout\">\n<p style=\"text-align: center;\"><strong>Safety Stock = Z \u00d7 \u03c3LT \u00d7 D avg<\/strong><\/p>\n<\/div>\n<table style=\"border-width: 1px; border-style: solid;\">\n<tbody>\n<tr>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\"><strong>Variable<\/strong><\/td>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\"><strong>Description<\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Z<\/td>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Z represents your desired service level. There is no \u201cdrag and drop\u201d number you can use&#8211;this number depends on your business and, specifically, how many \u201cscrew-ups\u201d your customers are willing to put up with before they move on to another vendor. As a starting point, pick somewhere between 90 and 95 percent. Eventually, you should use historical data to pick a more accurate service level. You may also have different service levels for different items within your business. For instance, high-priority items may need a service level of up to 99 percent.<\/td>\n<\/tr>\n<tr>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">\u03c3LT<\/td>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">\u03c3LT represents your standard deviation of lead time. To determine this, you\u2019ll need historical data on your lead times (i.e., the number of days it\u2019s supposed to take to receive goods) and your actual lead times (i.e., the number of days vendors actually take to deliver your goods). Check out this detailed breakdown of how to calculate your \u03c3LT for guidance.<\/td>\n<\/tr>\n<tr>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">D AVG<\/td>\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">D AVG is your demand average. To calculate this, first, choose a time period (preferably the interval of time between re-order points). Then, figure out how much inventory you go through during that time frame. For instance, if you reorder a specific type of inventory once a month, break down how much you sell each week within that month. Check out this detailed breakdown of how to calculate your demand average.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Once you\u2019ve set your safety stock formula, make sure you set a reorder point into your <a href=\"https:\/\/www.logiwa.com\/industries\/ecommerce-inventory-management-software\" target=\"_blank\" rel=\"noopener\">inventory management system (IMS).<\/a> You can either set it up so that you are notified when it\u2019s time to reorder or set it up so that a <a href=\"\/blog\/purchase-order\">purchase order<\/a> is automatically sent to the vendor, eliminating the need for manual intervention.<\/p>\n<p>You may also want to consider reviewing end-of-day reports as you familiarize yourself with your inventory data.<\/p>\n<h3>Use Flash Sales to Manage Excess Inventory<\/h3>\n<p>If you find yourself faced with excess inventory, a flash sale is one option for reducing the load. This type of sale is designed to sell goods at seriously discounted prices over a short period of time.<\/p>\n<p>However, keep in mind that there are a few drawbacks to a flash sale. Since they are purely transactional, they don\u2019t inspire customer loyalty. They also have very low margins, and you\u2019ll have to hand over control of your brand to the site that\u2019s managing the flash sale. Moreover, you\u2019ll need to have a great inventory management and <a href=\"\/blog\/what-is-order-management-system\">order management system<\/a> in place to fulfill the influx of orders.<\/p>\n<p>On the other hand, you can quickly get rid of products that could otherwise sit in your warehouse forever.<\/p>\n<p><!-- In-Page Optin Box --><\/p>\n<p class=\"in-content-optin\"><strong>You may also like: <\/strong>Here is everything you need to know about the<a href=\"\/blog\/days-in-inventory-formula\"> days in inventory formula<\/a>, how to calculate it, and the ways to improve your inventory days formula to optimum levels.<\/p>\n<h2 id=\"7\">How Warehouse Management Processes Affect Inventory Turnover<\/h2>\n<p>Your warehouse management processes can positively or negatively affect your inventory turnover. Consider this: Inventory turnover is all about converting your goods from stock to revenue, and your warehouse plays a pivotal role in the distribution of your goods.<\/p>\n<p>If your warehouse is struggling to move goods efficiently, analyze the following areas.<\/p>\n<h3 id=\"8\">Use the Right Picking Method<\/h3>\n<p>You can get away with single order picking (also known as discrete order picking) in the early days of your business. But, as your warehouse gets bigger, you\u2019ll need to select a more strategic, and efficient, <a href=\"\/blog\/warehouse-order-picking-methods\" target=\"_blank\" rel=\"noopener\">order picking method.<\/a><\/p>\n<table style=\"height: 790px; border-width: 1px; border-style: solid;\">\n<tbody>\n<tr style=\"height: 46px;\">\n<td style=\"height: 46px; width: 82px; border-width: 1px; border-style: solid; padding: 10px;\"><strong>Method<\/strong><\/td>\n<td style=\"height: 46px; width: 647px; border-width: 1px; border-style: solid; padding: 10px;\"><strong>Description<\/strong><\/td>\n<\/tr>\n<tr style=\"height: 221px;\">\n<td style=\"height: 221px; width: 82px; border-width: 1px; border-style: solid; padding: 10px;\">Batch picking<\/td>\n<td style=\"height: 221px; width: 647px; border-width: 1px; border-style: solid; padding: 10px;\">With this method, workers pick items for multiple orders at once. Rather than picking one order at a time, they\u2019ll pick all of the separate items (apples, oranges, pears) for several customers, and then sort them by the customer at a separate location within the warehouse.<\/p>\n<p>This method makes sense for warehouses managing a high volume of multi-item orders.<\/td>\n<\/tr>\n<tr style=\"height: 275px;\">\n<td style=\"height: 275px; width: 82px; border-width: 1px; border-style: solid; padding: 10px;\">Wave picking<\/td>\n<td style=\"height: 275px; width: 647px; border-width: 1px; border-style: solid; padding: 10px;\">The <a href=\"\/blog\/warehouse-wave-picking\" rel=\"noopener\">wave picking<\/a> method takes a schedule-based approach. The day\u2019s \u201cpicks\u201d are organized in waves based on\u00a0 criteria like \u201corders that need to be on the 2:00 P.M. outbound trucks,\u201d or \u201corders that require specialized packaging.\u201d This allows the warehouse to allocate its labor resources efficiently and meet customer delivery deadlines.<\/p>\n<p>This method makes sense for warehouses managing several types of orders going to multiple locations and with varying customer deadlines (e.g., expedited delivery).<\/td>\n<\/tr>\n<tr style=\"height: 248px;\">\n<td style=\"height: 248px; width: 82px; border-width: 1px; border-style: solid; padding: 10px;\">Zone picking (also known as pick and pass)<\/td>\n<td style=\"height: 248px; width: 647px; border-width: 1px; border-style: solid; padding: 10px;\"><a href=\"\/blog\/zone-picking-pick-and-pass\" rel=\"noopener\">Zone picking<\/a> is an enhanced version of batch picking. Workers are dedicated to specific zones where they are responsible for a certain set of SKUs. Multi-order cartons move through the warehouse while workers pick the items needed from their zones. The cartons then move on to the next zone and the next until everything for each order has been picked.<\/p>\n<p>This is great for warehouses with a large volume of orders or warehouses that require specialized training and equipment (e.g., forklifts) for specific sections.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h3 id=\"9\">Pick Path and Putaway Path Optimization Through Algorithms<\/h3>\n<p><a href=\"\/blog\/motion-waste\" target=\"_blank\" rel=\"noopener\">Motion waste<\/a> can seriously limit your ability to fulfill orders quickly enough. You can keep motion waste at a minimum by improving the layout of your warehouse and by using algorithms to optimize the path your workers take when picking goods or putting them away.<\/p>\n<p>An efficient putaway path gets your goods on the shelves quickly, while an efficient pick path gets your goods out the door fast.<\/p>\n<p>Seek out a WMS that uses algorithms to optimize your pick path. While the word \u201calgorithm\u201d can sound scary, once you take the time to break down warehouse algorithms, you can discover huge applications in your warehouse processes.<\/p>\n<h3>Flow-Through Order Management<\/h3>\n<p>Businesses process about 7 <a href=\"\/blog\/electronic-data-interchange-edi\" target=\"_blank\" rel=\"noopener\">EDI documents<\/a> per purchasing cycle. These kinds of manual processes increase the probability of errors and stretch out the time it takes to process a customer order, send an <a href=\"\/blog\/how-to-make-an-invoice\">invoice<\/a>, and ultimately, get paid! Adopting a flow-through order management system helps eliminate some manual processes and improve overall performance.<\/p>\n<p>It may be worth investing in integrated systems\u2014ones that can \u201cspeak\u201d to each other and also \u201cspeak\u201d to your vendor\u2019s systems and your customer-facing systems. Your inventory turnover ratio will be higher if an online customer order instantly triggers an action in your WMS, instead of your system waiting for you to manually input information.<\/p>\n<h2 id=\"10\">Inventory Turnover Ratio is a Sign Of A Business\u2019s Health, So Be Mindful!<\/h2>\n<p>Your inventory turnover ratio is worth your attention. It serves as a barometer of your business\u2019s health. Much like your cash flow statements keep you aware of how much money is coming in, your inventory turnover ratio helps you pay attention to how quickly goods are moving out. It\u2019s also something that investors will take a look at if you ever seek additional financing or want to sell your business. Understand the importance of inventory turnover, take time to calculate your ratio, use a data-driven safety stock formula, and invest in efficient processes.[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=&#8221;4.22.2&#8243; _module_preset=&#8221;default&#8221; width=&#8221;auto&#8221; custom_margin=&#8221;15px|auto|15px|auto|false|false&#8221; custom_css_main_element=&#8221;.hbspt-form .legal-consent-container a {||    color: white !important;||}&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221; global_module=&#8221;26788&#8243; theme_builder_area=&#8221;post_content&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.22.2&#8243; _module_preset=&#8221;default&#8221; use_background_color_gradient=&#8221;on&#8221; background_color_gradient_stops=&#8221;#481a96 0%|#200741 100%&#8221; custom_padding=&#8221;15px|35px|15px|35px|true|true&#8221; border_radii=&#8221;on|10px|10px|10px|10px&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_text _builder_version=&#8221;4.22.2&#8243; _module_preset=&#8221;default&#8221; header_3_text_color=&#8221;#ffffff&#8221; header_3_font_size=&#8221;30px&#8221; header_3_font_size_tablet=&#8221;30px&#8221; header_3_font_size_phone=&#8221;20px&#8221; header_3_font_size_last_edited=&#8221;on|phone&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;]<\/p>\n<h3 style=\"text-align: center;\">Request a free demo to learn more about Logiwa WMS.<\/h3>\n<p>[\/et_pb_text][et_pb_code _builder_version=&#8221;4.22.2&#8243; _module_preset=&#8221;default&#8221; text_orientation=&#8221;center&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;]<script charset=\"utf-8\" type=\"text\/javascript\" src=\"\/\/js.hsforms.net\/forms\/embed\/v2.js\"><\/script><!-- [et_pb_line_break_holder] --><script><!-- [et_pb_line_break_holder] -->  hbspt.forms.create({<!-- [et_pb_line_break_holder] -->    portalId: \"3469233\",<!-- [et_pb_line_break_holder] -->    formId: \"350e3ad2-eb09-46b1-9079-3f728ec2c0ea\",<!-- [et_pb_line_break_holder] -->    region: \"na1\"<!-- [et_pb_line_break_holder] -->  });<!-- [et_pb_line_break_holder] --><\/script>[\/et_pb_code][\/et_pb_column][\/et_pb_row][et_pb_row admin_label=&#8221;row&#8221; _builder_version=&#8221;4.16&#8243; background_size=&#8221;initial&#8221; background_position=&#8221;top_left&#8221; background_repeat=&#8221;repeat&#8221; width=&#8221;auto&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221; locked=&#8221;off&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.16&#8243; custom_padding=&#8221;|||&#8221; global_colors_info=&#8221;{}&#8221; custom_padding__hover=&#8221;|||&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_text _builder_version=&#8221;4.22.2&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;]<\/p>\n<h2 id=\"11\">Harnessing the Inventory Turnover Ratio for Better Business Efficiency<\/h2>\n<p>Understanding the intricacies of the inventory turnover ratio is pivotal for businesses aiming to optimize their supply chain and warehouse management. This ratio not only provides insights into the efficiency of sales but also sheds light on potential areas of improvement in inventory management. By harnessing the power of tools like Logiwa WMS, businesses can further refine their processes, ensuring that their inventory turnover remains optimal. Don&#8217;t leave your warehouse efficiency to chance; explore how Logiwa WMS can revolutionize your inventory management today.<\/p>\n<h2 id=\"12\">FAQs: Inventory Turnover Ratio<\/h2>\n<p><strong>Q: What is the inventory turnover ratio?<\/strong><br \/>A: The inventory turnover ratio shows how many products a company has sold and replaced over a specific period of time. It indicates how quickly a company transforms its inventory into sales, and it&#8217;s often expressed as a ratio.<\/p>\n<p><strong>Q: Why is the inventory turnover ratio important for businesses?<\/strong><br \/>A: The inventory turnover ratio serves as a barometer of a business&#8217;s health. It helps businesses understand how quickly goods are moving out, which can influence pricing, manufacturing processes, and warehouse management. Additionally, investors often consider this ratio when evaluating a business&#8217;s financial health.<\/p>\n<p><strong>Q: How can a company calculate its inventory turnover ratio?<\/strong><br \/>A: There are two primary methods to calculate the inventory turnover ratio:<\/p>\n<ul>\n<li>Divide sales by your average inventory.<\/li>\n<li>Divide the cost of goods sold (COGS) by your average inventory.<\/li>\n<\/ul>\n<p><strong>Q: What does a high inventory turnover ratio signify?<\/strong><br \/>A: A high inventory turnover ratio can be a positive sign, indicating that products are moving quickly and generating revenue. However, it can also suggest insufficient inventory, potentially leading to missed sales opportunities or future stockouts.<\/p>\n<p><strong>Q: Conversely, what implications does a low inventory turnover ratio have?<\/strong><br \/>A: A low inventory turnover ratio might point to sluggish sales or excess stock in the warehouse. It can indicate that products aren&#8217;t selling quickly enough, possibly due to ineffective marketing or management issues.<\/p>\n<p><strong>Q: How can warehouse management processes impact the inventory turnover ratio?<\/strong><br \/>A: Efficient warehouse management processes can positively influence the inventory turnover ratio. Factors like the right picking method, optimized pick paths, and efficient order management can help in converting goods from stock to revenue faster, thus improving the ratio.<\/p>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_code _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;]<script type=\"application\/ld+json\">{\"@context\":\"https:\/\/schema.org\",\"@type\":\"FAQPage\",\"mainEntity\":[{\"@type\":\"Question\",\"name\":\"What is the inventory turnover ratio?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"The inventory turnover ratio shows how many products a company has sold and replaced over a specific period of time. 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However, it can also suggest insufficient inventory, potentially leading to missed sales opportunities or future stockouts.\"}},{\"@type\":\"Question\",\"name\":\"Conversely, what implications does a low inventory turnover ratio have?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"A low inventory turnover ratio might point to sluggish sales or excess stock in the warehouse. It can indicate that products aren't selling quickly enough, possibly due to ineffective marketing or management issues.\"}},{\"@type\":\"Question\",\"name\":\"How can warehouse management processes impact the inventory turnover ratio?\",\"acceptedAnswer\":{\"@type\":\"Answer\",\"text\":\"Efficient warehouse management processes can positively influence the inventory turnover ratio. Factors like the right picking method, optimized pick paths, and efficient order management can help in converting goods from stock to revenue faster, thus improving the ratio.\"}}]}<\/script>[\/et_pb_code][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=&#8221;1&#8243; disabled_on=&#8221;off|off|off&#8221; module_class=&#8221;recommended-content-callout&#8221; _builder_version=&#8221;4.22.2&#8243; _module_preset=&#8221;default&#8221; use_background_color_gradient=&#8221;on&#8221; background_color_gradient_direction=&#8221;0deg&#8221; background_color_gradient_stops=&#8221;#6717cd 0%|#2d6ef9 100%&#8221; background_color_gradient_start=&#8221;#63a2d9&#8243; background_color_gradient_end=&#8221;#3469b2&#8243; custom_margin=&#8221;0px||0px||false|false&#8221; custom_padding=&#8221;30px|30px|50px|30px|false|false&#8221; border_radii=&#8221;on|12px|12px|12px|12px&#8221; box_shadow_style=&#8221;preset1&#8243; box_shadow_vertical=&#8221;0px&#8221; box_shadow_blur=&#8221;10px&#8221; box_shadow_color=&#8221;rgba(74,75,109,0.09)&#8221; saved_tabs=&#8221;all&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_row _builder_version=&#8221;4.16&#8243; _module_preset=&#8221;default&#8221; width=&#8221;100%&#8221; custom_margin=&#8221;||20px||false|false&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_column type=&#8221;4_4&#8243; _builder_version=&#8221;4.16&#8243; _module_preset=&#8221;default&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_text _builder_version=&#8221;4.16&#8243; _module_preset=&#8221;default&#8221; header_2_text_align=&#8221;center&#8221; header_2_text_color=&#8221;#FFFFFF&#8221; header_2_line_height=&#8221;32px&#8221; custom_margin=&#8221;||0px||false|false&#8221; custom_padding=&#8221;||0px||false|false&#8221; custom_css_main_element=&#8221;text-align: center !important;&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;]<\/p>\n<h2><span>Transform your business into a new age fulfillment center.<\/span><\/h2>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row column_structure=&#8221;1_3,1_3,1_3&#8243; use_custom_gutter=&#8221;on&#8221; gutter_width=&#8221;2&#8243; make_equal=&#8221;on&#8221; module_class=&#8221;blog-callout-tiles&#8221; _builder_version=&#8221;4.16&#8243; _module_preset=&#8221;default&#8221; width=&#8221;100%&#8221; locked=&#8221;off&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_column type=&#8221;1_3&#8243; module_class=&#8221;three-pl&#8221; _builder_version=&#8221;4.16&#8243; _module_preset=&#8221;default&#8221; background_color=&#8221;#FFFFFF&#8221; custom_padding=&#8221;30px|10px|60px|10px|false|false&#8221; box_shadow_style=&#8221;preset1&#8243; box_shadow_vertical=&#8221;13px&#8221; box_shadow_blur=&#8221;30px&#8221; box_shadow_color=&#8221;rgba(74,75,109,0.37)&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_text _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; header_3_text_align=&#8221;center&#8221; header_3_text_color=&#8221;#413885&#8243; text_orientation=&#8221;center&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;]<\/p>\n<h3 style=\"text-align: center;\">3PL<\/h3>\n<p>Cloud 3PL software for high-volume fulfillment excellence<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p class=\"more\"><a class=\"read-more\" href=\"https:\/\/www.logiwa.com\/industries\/cloud-3pl-software\">Third Party Logistics Warehouse Software<\/a><\/p>\n<p>[\/et_pb_text][\/et_pb_column][et_pb_column type=&#8221;1_3&#8243; module_class=&#8221;warehouse-management&#8221; _builder_version=&#8221;4.16&#8243; _module_preset=&#8221;default&#8221; background_color=&#8221;#FFFFFF&#8221; custom_padding=&#8221;30px|10px|60px|10px|false|false&#8221; box_shadow_style=&#8221;preset1&#8243; box_shadow_vertical=&#8221;13px&#8221; box_shadow_blur=&#8221;30px&#8221; box_shadow_color=&#8221;rgba(74,75,109,0.37)&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_text _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; header_3_text_align=&#8221;center&#8221; header_3_text_color=&#8221;#413885&#8243; text_orientation=&#8221;center&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;]<\/p>\n<h3 style=\"text-align: center;\">Warehouse Management<\/h3>\n<p>Modern digital WMS powers a modern fulfillment experience<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p class=\"more\"><a class=\"read-more\" href=\"https:\/\/www.logiwa.com\/solutions\/digital-warehouse-management-software\">Warehouse<br \/>Software<\/a><\/p>\n<p>[\/et_pb_text][\/et_pb_column][et_pb_column type=&#8221;1_3&#8243; module_class=&#8221;inventory-management&#8221; _builder_version=&#8221;4.16&#8243; _module_preset=&#8221;default&#8221; background_color=&#8221;#FFFFFF&#8221; custom_padding=&#8221;30px|10px|60px|10px|false|false&#8221; box_shadow_style=&#8221;preset1&#8243; box_shadow_vertical=&#8221;13px&#8221; box_shadow_blur=&#8221;30px&#8221; box_shadow_color=&#8221;rgba(74,75,109,0.37)&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;][et_pb_text _builder_version=&#8221;4.18.0&#8243; _module_preset=&#8221;default&#8221; header_3_text_align=&#8221;center&#8221; header_3_text_color=&#8221;#413885&#8243; text_orientation=&#8221;center&#8221; global_colors_info=&#8221;{}&#8221; theme_builder_area=&#8221;post_content&#8221;]<\/p>\n<h3 style=\"text-align: center;\">Inventory Management<\/h3>\n<p>Improve your inventory across your supply chain.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p class=\"more\"><a class=\"read-more\" href=\"https:\/\/www.logiwa.com\/industries\/ecommerce-inventory-management-software\">Inventory<br \/>Software<\/a><\/p>\n<p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In this article, we&#8217;ll guide you through understanding the significance of the inventory turnover ratio and its impact on warehouse management. By the end, you&#8217;ll have a clear grasp of how to calculate this ratio, its implications for your business, and strategies to optimize it for better warehouse efficiency. Key Takeaways: Inventory turnover ratio indicates [&hellip;]<\/p>\n","protected":false},"author":29,"featured_media":9685,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_et_pb_use_builder":"on","_et_pb_old_content":"A business that understands its inventory turnover makes smarter decisions across the supply chain. With clear inventory insights, you can competitively price your products without cutting into profits, bring efficiency into your manufacturing processes, streamline your warehouse management efforts, and predict when to order more goods more accurately.\r\n\r\n<!--more-->\r\n\r\nIn this article, we will break down how your warehouse can accurately determine your inventory turnover. We\u2019ll start off by helping you identify the data you need to carry out this calculation. Once you have your figures, we\u2019ll break down what they mean and how you can use them to re-evaluate your existing processes, including your picking and packing methods, your <a href=\"\/blog\/picking-path-optimization-algorithm\" rel=\"noopener\">warehouse picking paths<\/a>, and more.\r\n\r\nLet\u2019s get started.\r\n\r\n<!-- In-Page Optin Box -->\r\n<p class=\"in-content-optin\"><strong>BONUS:<\/strong> Before you read further, download our Warehouse Management Software Whitepaper to see <a href=\"\/resources\/whitepapers\/warehouse-management-software\" target=\"_blank\" rel=\"noopener\">how Logiwa uses real-time data to help you get up to 100% inventory accuracy and execute advanced fulfillment strategies like wave planning.<\/a><\/p>\r\n\r\n<h2>What Is Inventory Turnover and Why Is It Important?<\/h2>\r\nInventory turnover <a href=\"https:\/\/www.investopedia.com\/terms\/i\/inventoryturnover.asp\" target=\"_blank\" rel=\"noopener\">shows how many products a company has sold and replaced<\/a> over a specific period of time. In other words, it\u2019s how quickly a company transforms its inventory into sales. Most companies express inventory turnover as a ratio.\r\n<h3>How To Calculate Inventory Turnover<\/h3>\r\nThere are <a href=\"https:\/\/www.investopedia.com\/terms\/i\/inventoryturnover.asp\" target=\"_blank\" rel=\"noopener\">two different methods for calculating<\/a> inventory turnover:\r\n<ol>\r\n \t<li>Divide sales by your average inventory<\/li>\r\n \t<li>Divide cost of goods sold (COGS) by your average inventory<\/li>\r\n<\/ol>\r\nLet\u2019s quickly take stock of the data we need to run an inventory turnover ratio formula.\r\n<table style=\"border-width: 1px; border-style: solid;\">\r\n<tbody>\r\n<tr>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\"><strong>Variable<\/strong><\/td>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\"><strong>Description<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Time period<\/td>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">For the purposes of this exercise, we\u2019ll assume our time period is 1 year.\r\n<ul>\r\n \t<li>Example variable: 1 year<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Sales<\/td>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">This is the dollar figure of all your sales over one year. Keep in mind that this is sales revenue, not cash flow. If you\u2019ve sold an item, but haven\u2019t received payment yet, you would still include the dollar value of the sale in your annual sales figure.\r\n<ul>\r\n \t<li>Example variable: $1 million<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Cost of goods sold<\/td>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">This is exactly what it sounds like: the <i>cost <\/i>of the goods you sold. Your sales figure is the <i>price <\/i>of goods sold. In other words, your sales figures include a markup. Some companies prefer to use cost of goods sold because it provides a number that\u2019s more reflective of reality. Some argue that inventory turnover calculated using sales revenue results in an inflated number.\r\n<ul>\r\n \t<li>Example variable: $625,000<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Average inventory<\/td>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Find your average inventory by adding your starting inventory (at the beginning of the year, in this case) to your finishing inventory (at the end of the year, in this case) and then dividing it by 2.\r\n<ul>\r\n \t<li>Example variable: 1,000 units \/ 2<\/li>\r\n<\/ul>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n\u00a0\r\n\r\nAnalysts use inventory turnover to assess your company\u2019s health relative to its industry peers. It shows how quickly your company is selling goods, and analysts can use industry benchmarks to see whether you\u2019re under- or over-performing.\r\n<h3>Is Your Inventory Turnover Ratio High or Low ?<\/h3>\r\nHow do you know whether your inventory turnover rate is low or high? The short answer: It depends on your industry. For instance, a luxury goods business will have a low turnover rate in general, but a high turnover rate in terms of its industry. Why? Because luxury goods retailers sell a lower volume of goods, but at a higher price and with higher mark-ups. For their industry, a low turnover rate is acceptable.\r\n\r\nSo, keep in mind that there is no \u201cgeneral\u201d inventory turnover rate that you should meet. Rather, you should compare your inventory turnover ratio to <a href=\"https:\/\/www.readyratios.com\/sec\/ratio\/inventory-turnover\/\" target=\"_blank\" rel=\"noopener\">industry benchmarks<\/a>.\r\n<h4>What does a low inventory turnover ratio mean?<\/h4>\r\nA low inventory turnover ratio points to <a href=\"https:\/\/www.investopedia.com\/terms\/i\/inventoryturnover.asp\" target=\"_blank\" rel=\"noopener\">two big potential issues<\/a>:\r\n<ul>\r\n \t<li>Sluggish sales<\/li>\r\n \t<li>Excess stock<\/li>\r\n<\/ul>\r\nLow turnover is a sign that your goods aren\u2019t selling quickly enough or that you aren\u2019t marketing them effectively. It could also point to issues in your warehouse management. If your goods aren\u2019t getting to customers on time or in the right quantities, your reverse supply chain (returns) may be having a negative impact on your inventory turnover ratio.\r\n<h4>What does a high inventory turnover ratio mean?<\/h4>\r\nInterestingly, a <a href=\"https:\/\/www.investopedia.com\/terms\/i\/inventoryturnover.asp\" target=\"_blank\" rel=\"noopener\">high inventory turnover ratio can be a good or a bad sign<\/a>, depending on the context.\r\n\r\nIn most cases, it\u2019s a good sign. It means you\u2019re moving product and bringing in revenue. Your stock isn\u2019t sitting on shelves at the risk of theft, damage, loss, spoilage, or obsolescence.\r\n\r\nOn the other hand, a high turnover rate may point to insufficient inventory. If you\u2019re burning through inventory at a rapid pace, it could be a sign that you\u2019re missing out on additional sales opportunities.\r\n\r\nA high turnover rate also presents the risk of stockouts down the road. Stockout events diminish customer loyalty, potentially jeopardizing your future inventory turnover rates as your customers move to other retailers.\r\n<h3>How To Correct Poor Inventory Turnover Ratios<\/h3>\r\n<h4>Revisit Your Safety Stock Formula<\/h4>\r\nAs described above, what exactly constitutes a \u201csub-optimal\u201d inventory turnover ratio depends on the context. If you have high inventory turnover levels because of inefficient inventory, it\u2019s a sign that you need to revisit your safety stock <a href=\"\/blog\/stock-and-inventory-replenishment\" rel=\"noopener\">replenishment <\/a>strategy and that means thinking about your <a href=\"\/blog\/safety-stock\" target=\"_blank\" rel=\"noopener\">safety stock formula<\/a>.\r\n\r\nIn fact, thinking about your safety stock formula also addresses excess inventory issues, which leads to a lower inventory ratio down the road.\r\n\r\nBusiness owners often rely on gut feeling to determine inventory <a href=\"\/blog\/reorder-point-formula\" rel=\"noopener\">reorder points<\/a>. However, if you want a sustainable, scalable business, you\u2019ll need to take a data-driven approach. There are several variations of the safety stock formula, and you may even have software that has this functionality built in. If not, use this simple formula as a starting point:\r\n\r\n<!-- Callout Box -->\r\n<div class=\"blog-callout\">\r\n<p style=\"text-align: center;\"><strong>Safety Stock = Z \u00d7 \u03c3LT \u00d7 D avg<\/strong><\/p>\r\n\r\n<\/div>\r\n<table style=\"border-width: 1px; border-style: solid;\">\r\n<tbody>\r\n<tr>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\"><strong>Variable<\/strong><\/td>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\"><strong>Description<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Z<\/td>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">Z represents your desired service level. There is no \u201cdrag and drop\u201d number you can use--this number depends on your business and, specifically, how many \u201cscrew ups\u201d your customers are willing to put up with before they move on to another vendor. As a starting point, pick somewhere between 90 and 95 percent. Eventually, you should use historical data to pick a more accurate service level. You may also have different service levels for different items within your business. For instance, high-priority items may need a service level of up to 99 percent.<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">\u03c3LT<\/td>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">\u03c3LT represents your standard deviation of lead time. To determine this, you\u2019ll need historical data on your lead times (i.e., the number of days it\u2019s supposed to take to receive goods) and your actual lead times (i.e., the number of days vendors actually take to deliver your goods). Check out this detailed breakdown of how to calculate your \u03c3LT for guidance.<\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">D AVG<\/td>\r\n<td style=\"border-width: 1px; border-style: solid; padding: 10px;\">D AVG is your demand average. To calculate this, first choose a time period (preferably the interval of time between re-order points). Then, figure out how much inventory you go through during that time frame. For instance, if you reorder a specific type of inventory once a month, break down how much you sell each week within that month. Check out this detailed breakdown of how to calculate your demand average.<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n\u00a0\r\n\r\nOnce you\u2019ve set your safety stock formula, make sure you set a reorder point into your <a href=\"\/inventory-management-software\" target=\"_blank\" rel=\"noopener\">inventory management system (IMS).<\/a> You can either set it up so that you are notified when it\u2019s time to reorder or set it up so that a purchase order is automatically sent to the vendor, eliminating the need for manual intervention.\r\n\r\nYou may also want to consider reviewing end-of-day reports as you familiarize yourself with your inventory data.\r\n<h3>Use Flash Sales to Manage Excess Inventory<\/h3>\r\nIf you find yourself faced with excess inventory, a flash sale is one option for reducing the load. This type of\u00a0 sale is designed to sell goods at seriously discounted prices over a short period of time.\r\n\r\nHowever, keep in mind that there are a <a href=\"https:\/\/blog.sellerschoice.digital\/selling-flash-sale-site\" target=\"_blank\" rel=\"noopener\">few drawbacks to a flash sale<\/a>. Since they are purely transactional, they don\u2019t inspire customer loyalty. They also have very low margins, and you\u2019ll have to hand over control of your brand to the site that\u2019s managing the flash sale. Moreover, you\u2019ll need to have a great inventory management and order management system in place to fulfill the influx of orders.\r\n\r\nOn the other hand, you can quickly get rid of products that could otherwise sit in your warehouse forever.\r\n\r\n<!-- In-Page Optin Box -->\r\n<p class=\"in-content-optin\"><strong>Better Warehouse Performance = Higher Profit Margins:<\/strong> Logiwa syncs accurate data across your entire interface so the inventory numbers you see on your dashboard are what your employees see on their devices. <a href=\"\/resources\/whitepapers\/warehouse-management-software\" target=\"_blank\" rel=\"noopener\"> Learn how Logiwa uses real-time data to help you get up to 100% inventory accuracy and 2.5x shipments.<\/a><\/p>\r\n\r\n<h3>How Warehouse Management Processes Affect Inventory Turnover<\/h3>\r\nYour warehouse management processes can positively or negatively affect your inventory turnover. Consider this: Inventory turnover is all about converting your goods from stock to revenue, and your warehouse plays a pivotal role in the distribution of your goods.\r\n\r\nIf your warehouse is struggling to move goods efficiently, analyze the following areas.\r\n<h4>Use the Right Picking Method<\/h4>\r\nYou can get away with single order picking (also known as discrete order picking) in the early days of your business. But, as your warehouse gets bigger, you\u2019ll need to select a more strategic, and efficient, <a href=\"\/blog\/order-picking-productivity\" target=\"_blank\" rel=\"noopener\">order picking method.<\/a>\r\n<table style=\"height: 790px; border-width: 1px; border-style: solid;\">\r\n<tbody>\r\n<tr style=\"height: 46px;\">\r\n<td style=\"height: 46px; width: 82px; border-width: 1px; border-style: solid; padding: 10px;\"><strong>Method<\/strong><\/td>\r\n<td style=\"height: 46px; width: 647px; border-width: 1px; border-style: solid; padding: 10px;\"><strong>Description<\/strong><\/td>\r\n<\/tr>\r\n<tr style=\"height: 221px;\">\r\n<td style=\"height: 221px; width: 82px; border-width: 1px; border-style: solid; padding: 10px;\">Batch picking<\/td>\r\n<td style=\"height: 221px; width: 647px; border-width: 1px; border-style: solid; padding: 10px;\">With this method, workers pick items for multiple orders at once. Rather than picking one order at a time, they\u2019ll pick all of the separate items (apples, oranges, pears) for several customers, and then sort them by customer at a separate location within the warehouse.\r\n\r\n\u00a0\r\n\r\nThis method makes sense for warehouses managing a high volume of multi-item orders.<\/td>\r\n<\/tr>\r\n<tr style=\"height: 275px;\">\r\n<td style=\"height: 275px; width: 82px; border-width: 1px; border-style: solid; padding: 10px;\">Wave picking<\/td>\r\n<td style=\"height: 275px; width: 647px; border-width: 1px; border-style: solid; padding: 10px;\">The <a href=\"\/blog\/warehouse-wave-picking\" rel=\"noopener\">wave picking<\/a> method takes a schedule-based approach. The day\u2019s \u201cpicks\u201d are organized in waves based on\u00a0 criteria like \u201corders that need to be on the 2:00 P.M. outbound trucks,\u201d or \u201corders that require specialized packaging.\u201d This allows the warehouse to allocate its labor resources efficiently and meet customer delivery deadlines.\r\n\r\n\u00a0\r\n\r\nThis method makes sense for warehouses managing several types of orders going to multiple locations and with varying customer deadlines (e.g., expedited delivery).<\/td>\r\n<\/tr>\r\n<tr style=\"height: 248px;\">\r\n<td style=\"height: 248px; width: 82px; border-width: 1px; border-style: solid; padding: 10px;\">Zone picking (also known as pick and pass)<\/td>\r\n<td style=\"height: 248px; width: 647px; border-width: 1px; border-style: solid; padding: 10px;\"><a href=\"\/blog\/zone-picking-pick-and-pass\" rel=\"noopener\">Zone picking<\/a> is an enhanced version of batch picking. Workers are dedicated to specific zones where they are responsible for a certain set of SKUs. Multi-order cartons move through the warehouse while workers pick the items needed from their zones. The cartons then move on to the next zone and the next until everything for each order has been picked.\r\n\r\n\u00a0\r\n\r\nThis is great for warehouses with a large volume of orders or warehouses that require specialized training and equipment (e.g., forklifts) for specific sections.<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n\u00a0\r\n<h3>Pick Path and Putaway Path Optimization Through Algorithms<\/h3>\r\n<a href=\"\/blog\/motion-waste\" target=\"_blank\" rel=\"noopener\">Motion waste can seriously limit your ability to fulfill orders<\/a> quickly enough. You can keep motion waste at a minimum by improving the layout of your warehouse and by using algorithms to optimize the path your workers take when picking goods or putting them away.\r\n\r\nAn efficient putaway path gets your goods on the shelves quickly, while an efficient pick path gets your goods out the door fast.\r\n\r\nSeek out a warehouse management system (WMS) that uses algorithms to optimize your pick path. While the word \u201calgorithm\u201d can sound scary , once you take the time to break down warehouse algorithms, you can discover huge applications in your warehouse processes.\r\n<h3>Flow Through Order Management<\/h3>\r\nBusinesses process about 7 <a href=\"\/blog\/electronic-data-interchange-edi\" target=\"_blank\" rel=\"noopener\">EDI documents<\/a> per purchasing cycle. These kinds of manual processes increase the probability of errors and stretch out the time it takes to process a customer order, send an invoice, and ultimately, get paid! Adopting a flow through order management system helps eliminate some manual processes and improve overall performance.\r\n\r\nIt may be worth investing in integrated systems\u2014ones that can \u201cspeak\u201d to each other and also \u201cspeak\u201d to your vendor\u2019s systems and your customer-facing systems. Your inventory turnover ratio will be higher if an online customer order instantly triggers an action in your WMS, instead of your <a href=\"\/\" rel=\"noopener\">WMS<\/a> waiting for you to manually input information.\r\n<h3>Inventory Turnover Ratio is a Sign Of A Business\u2019s Health, So Be Mindful!<\/h3>\r\nYour inventory turnover ratio is worth your attention. It serves as a barometer of your business\u2019s health. Much like your cash flow statements keep you aware of how much money is coming in, your inventory turnover ratio helps you pay attention to how quickly goods are moving out. It\u2019s also something that investors will take a look at if you ever seek additional financing or want to sell your business. Understand the importance of inventory turnover, take time to calculate your ratio, use a data-driven safety stock formula, and invest in efficient warehouse management processes.","_et_gb_content_width":"","content-type":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"no","footnotes":""},"categories":[34,33],"tags":[],"class_list":["post-1175","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-inventory-management","category-warehouse-management"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v19.1 (Yoast SEO v25.2) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Inventory Turnover Ratio Impact on Warehouse Management | Logiwa | WMS<\/title>\n<meta name=\"description\" content=\"Need to calculate inventory turnover ratio? 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