![]() ![]() Step 5: Streamline Supplier Relationships Use more accurate methods to predict exactly how much stock will be needed.Įxample: Tech Titan uses machine learning models to forecast sales of their products, ensuring they stock just enough to meet anticipated demand. Step 3: Implement JIT (Just-In-Time) RestockingĮnsure stocks are replenished only as they're needed, minimizing held inventory.Įxample: Brew Bistro uses JIT for their perishable ingredients, ordering just enough to meet short-term demand, thereby increasing the velocity at which these items are used. Recognize products in declining stages and manage their stocks accordingly.Įxample: Trend Trove notices a certain fashion accessory's waning popularity, so they limit its restocking and promote it for clearance. To boost your inventory velocity ratio, follow our simple 6-step process: Step 1: Accelerate Stock Turnoverįocus on strategies that expedite the sale of inventory items.Įxample: Gadget Grove identifies slow-moving items and bundles them with best-sellers at a slight discount, promoting faster sales and increasing the velocity ratio. In the case of "FashFits," having a ratio of 4 suggests they are doing a good job at managing and selling their inventory, as they are turning over their entire stock approximately every three months (12 months in a year divided by the ratio of 4).Ħ Steps to Improve Inventory Velocity Ratio On the other hand, a low Inventory Velocity Ratio might suggest overstocking, which can result in increased holding costs and potential obsolescence or spoilage, especially for perishable items. It can also indicate robust sales performance. This leads to lower holding costs and fresher stock. Higher Inventory Velocity Ratio generally indicates that the company manages its inventory well, selling products without holding onto stock for an extended time. It indicates that the value of the goods they sold was four times the average value of the inventory they had in stock. This result means that "FashFits" sold its entire inventory four times over that period. If "FashFits" had a Cost of Goods Sold (COGS) of $200,000 during a specific period and their Average Inventory during that same period was $50,000, the calculation would be: Inventory Velocity Ratio = Cost of Goods Sold / Average InventoryĮxample: Let's consider the case of "FashFits," a clothing brand. The most common formula to calculate this metric is: The inventory velocity ratio offers insights into how effectively a company is managing its inventory in relation to its sales. How to Calculate Inventory Velocity Ratio
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