This is the seventh and final article in a series looking at measuring KPIs for warehouse operations. We recently outlined the 7 KPIs to track for warehouse improvement. This series takes each KPI and examines it in more detail.
What does stock turn measure?
Stock turn – or stock turnover – is an inventory measure that looks at how long stock takes to be sold.
How quickly your stock is being sold helps to identify whether you’re hanging on to too much stock. Excess inventory is – by and large – never a good thing in a warehouse, as it means that too much cash is tied up in inventory.
One benefit of tracking stock turn as a KPI goes hand in hand with expiry date tracking. Distributors that handle food and other goods with “sell by” or “use by” restrictions can manage expiry dates if they track stock turn. Balloon One has many customers in the food and drink and pharmaceutical industries, for whom expiry date management is important. One such customer has been proactively managing obsolescence, and actively identifying items nearing their shelf lives. They put the product into marked promotional areas in the warehouse so that it can be discounted. The HighJump WMS system they use automatically notifies them which stock to move. Once in the promotions area, and assigned a promotional code, the stock is prominent and more noticeable to the sales team, making it more likely to get sold rather than wasted.
The stock turn KPI also identifies sales performance, showing which products are selling well. A business will want to stock more of the well-selling items than the slow movers. Holding on to too much slow-moving stock will increase the money a distributor has tied up in stock, which in turn can have an impact on income and profitability.
So, the stock turn KPI can identify where utilisation improvements can be made. Slow-moving stock can be promoted or discounted, while the placement or storage of fast-moving items can be optimised to speed up picking and packing.
How is stock turn measured?
The stock turn ratio shows the number of times that stock has been sold in a year. For example, if a distributor has 50 items of a SKU in stock, and in the past year it has sold 485 of them, then the stock turn calculation would be 485 ÷ 50 = 9.7. This means that the inventory will have turned over 9.7 times in that twelve month period.
What is a good stock turn score?
Low stock turnover would suggest that sales are weak and excess stock is being held. While a high stock turn ratio points to stronger sales or higher discounts. How quickly a business sells its stock is a key indicator of its business performance.
However, a good stock turn score entirely depends on what goods you sell. If you’re in FMCG, then your chocolate bars or washing powder will sell more quickly than if you’re selling cars, for example. It’s no use, therefore, assessing your business’s figures against those of an incomparable company.
Of course, short stock turn times are best for comestible items, as no-one wants to buy stale or rotting food. But with higher value stock, a slower turnover is expected. It’s here though that comparisons with other companies or with other product types can be useful.
How can you improve your stock turn score?
Optimising your supply chain and logistics is of course key to improving stock turn. Any decent warehouse management system (WMS) will be able to help identify slow-moving stock, which can then be put on promotion, just as our food and drink supplier does.
Reducing stock holding will also improve the stock turn ratio. A company that regularly reviews its slow-selling stock can then identify take measures to identify why it’s not moving, then perhaps adjust pricing or change marketing tactics. Keeping products in storage that aren’t selling is not only a waste of space, but also a hindrance to profits.
If you would like to explore the options for improving your technology, or would like to discuss how to measure stock turn, we can help. Our supply chain consultants can analyse your distribution operation and advise on KPI metrics, as well as recommend technology to help boost your supply chain performance. Call us on 020 8819 9071 or get in touch.
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Full list of articles in this measuring KPIs series: