Inventory Management: Two Key Indicators to Improve Warehouse Operations
Your warehouse is your company’s barometer: It measures the health of your sales, as well as its fluctuations. That is why good inventory management, including optimizing the flow of goods and sales forecasting, becomes essential if you want to avoid product shortages and overstock. Monitoring the turnover and coverage rates will help you limit the risks related to demand fluctuations and help achieve a balance between inventory turnover and supply.
Turnover Rate: Measuring the speed at which the inventory is replenished
To calculate Turnover Rate use the following formula:
Total (period X) Demand / Average Inventory = Turnover Rate (TR)
In order to make this calculation you must first determine your “average inventory.” This metric can be calculated as follows:
(Initial Stock + Final Stock) / 2 = Average Inventory
The above formula allows you to calculate the average inventory without factoring in the observed growth or decline over a longer time span. To include these variables, use the following formula:
Average Stock (Monthly) = [ [ (S1+S2) / 2 ] * 3 months + [ (S3+S4) / 2 ] * 2 months + [ (S5+S6) / 2 ] * 2 months ] / 7 months
The average inventory and the turnover rate will help avoid product shortages and overstock by giving you a general idea of the inventory replacement rate at any given time. Keep in mind that a high turnover rate is a sign of excellent performance.
Coverage Rate: A daily overview of your inventory
Centralizing your products as best as possible and directing them to the right stores based on sales performance is key. To avoid having to replenish a store that has exhausted all its inventory, it is best to keep your coverage rate in mind.
Assuming you have covered your needs with a well thought out supply method, you can manage the just-in-time flow without worrying about the stock shortages. You should then be able to calculate the average period covered by the inventory with the following formula:
Average Stock per Month / Average Monthly Demand = Coverage Rate (CR)
When calculated correctly, this indicator allows you to strengthen your supply chain with the right stocked products, at the right quantity, at the right time—thus providing better coverage in response to the demand.
Prevention is Better Than a Cure
If you have opted for a just-in-time model, calculating the coverage rate and the turnover rate is an excellent way to add resiliency to your supply chain. However, to do this you will need a solution in which you can accurately track data in real time.
Generix Group North America provides a suite of solutions within its Supply Chain Hub to create efficiencies across the entire supply chain. From Warehouse Management Systems (WMS) and Transportation Management Systems (TMS), to Manufacturing Execution Systems (MES) and more, their highly agile software platforms can deliver a wide range of benefits that ultimately lead to significant increases in operating efficiencies.
Please visit www.generixgroup.com/en-na to learn more.