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Are you carrying too much inventory or selling it too slowly? That can lead to high holding costs, slow down your logistics, and lock up a large part of your capital.

One of the easiest ways to check that you’re carrying a healthy amount of inventory (for your industry) is to look at your inventory turnover ratio.

Inventory turnover shows how many times over you sell your inventory during a particular period, typically a year.

If you’re barely clearing your warehouses once or twice a year, you could likely free up a lot of warehouse shelves and capital.

That way, you can focus on investing in growing your business rather than just storing as much inventory as possible.

Keep reading to learn how to calculate inventory turnover, how to use it to optimize your business logistics, and more.

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Why Is Inventory Turnover Important?

Your rate of inventory turnover is a primary indicator of whether your inventory management is efficient or not. Excess inventory costs money and slows down your cash flow.

Extra inventory means extra holding costs

Whether you use a third-party fulfillment service or handle things in your own warehouses, a larger inventory means higher costs.

By optimizing your stock, you may even have excess warehouse space to rent out or use for other business purposes.

Less free capital to focus on growing your business

The more money you’ve invested in stock that’s sitting in warehouses, the less you have to focus on business growth.

Imagine if you could instead invest the extra capital in a new marketing campaign or improving your customer experience drastically.

These are much bigger impact actions than simply having enough inventory to last the whole year.

After all, with a modern supply chain, it’s easy enough to replace products on a need-to-do basis.

Inventory Turnover Ratio Example From Nordstrom

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Over the past two years, Nordstrom has ranged between 4.55 and 4.83 turns per quarter. That’s between 18 and 19 turns per year, which is below the apparel average of 24.

There’s a logical reason for the lower inventory. Nordstrom custom orders clothes directly from manufacturers, and likely orders in bulk to drive the costs down.

Strict retailers can simply buy wholesale from brands, which makes it easier to keep a smaller, rolling inventory.

The inventory turnover rate is often included in quarterly reports (or income statements) for companies that sell physical products. So you may be able to find the data for industry leaders in your market as well.

A quick Google search will often do the trick.

How Route Optimization Leads to Healthier Inventory Turnover

Overstocking and a low rate of inventory turnover is usually a symptom of a more fundamental problem: you don’t trust your supply chain.

Speed up your inbound and outbound logistics with OptimoRoute

Route optimization can help you speed up both inbound and outbound logistics, and make it more predictable and reliable. That allows your business to scale while reducing your costs, and simultaneously increasing your revenue.

Not only will our software help optimize complex routes with many stops in mere seconds, but it also accounts for intricate, real-world variables. OptimoRoute adjusts for delivery time windows, vehicle capacity, driver schedules, vehicle capabilities (loading ramp, refrigeration), and more.

Plan faster and better routes for internal shipments to improve your lead times. That makes it possible to lower your inventory levels and dead stock.

You can also transform your last mile delivery operation and to reduce delivery times, and buy extra time that way.

It sounds great, but you may wonder how it works in real life. Let’s take a look at how OptimoRoute helped Biomed Care Services, a delivery-based pharmacy, to optimize their logistics.

Before OptimoRoute, Biomed was planning routes manually by dividing zip codes between 6 drivers. They were struggling to make all deliveries on time, and the delivery cost of sales was very high.

The lack of delivery efficiency was severely impacting Biomed’s business performance. That all changed when it switched to OptimoRoute.

With faster, smarter planning and better routes, Biomed’s been able to cut drivers by 33% while handling 25% more orders. They save £3,000+ per month, even while handling more packages.

OptimoRoute makes it easy to handle deliveries at scale, which allowed Biomed to keep growing.

Plan up to 5 weeks in advance in mere minutes

OptimoRoute can easily handle orders imported in bulk and makes it easy to plan shipments for up to 5 weeks.

Planning a month’s deliveries used to take days for Biomed’s managers. With OptimoRoute’s smart long term planning, they handle 5 weeks in mere hours.

Use real-time data and analytics to improve efficiency

Don’t rely on hunches or in-person interviews to try to evaluate the state of your logistics. Use our detailed data and analytics to improve the efficiency of your delivery fleet.

Biomed struggled with repeat orders because they had no paper trail. The company would just take their clients’ word for it when they reported a missed shipment.

WIth OptimoRoute, every delivery is confirmed and saved in real time. Biomed no longer has repeat orders cluttering up the delivery operation.

Biomed also used the same data to create an audit trail for their NHS deliveries.

Conclusion 

Running out of stock is a nightmare for any business. Not only is it stressful trying to deal with unfulfilled orders, but you also risk losing loyal customers due to significant delays.

So many companies overcorrect and keep too much inventory in their warehouses. That’s an equally big mistake.

By optimizing your inbound supply chain, as well as deliveries, you can lower your inventory without facing the risk of disappointing your customers.

You get the best of both worlds.
Start your 30-day free trial of OptimoRoute today and take back control of your logistics.