28 Nov 2024
Inventory Turnover Ratio (ITR) is a vital metric for the inventory management of a business and ought to be agile and efficient. This is the ratio that analyses the frequency with which inventory of a particular company is sold and restocked during a given period. Given Singapore’s competitive market, inventory turnover optimisation plays a direct role in profitability and operational efficiency.
Getting familiar with the ITR “understanding” can help reduce inventory costs, improve cash flow, and keep products on shelves. Why is the ITR so important in inventory optimisation, and how can companies get this balance? Let’s explore.
Inventory Turnover Ratio: What Is It, and Why Does It Matter?
Inventory Turnover Ratio indicates how efficiently a business is keeping track of its inventory. The sum of COGS, or the cost of goods sold, is divided by the average inventory during a period to determine ITR. A higher ratio usually suggests efficient sales and inventory replacement, while a lower ratio may be indicative of overstocking or stagnant sales.
As the rent and storage costs are quite high for Singaporean businesses, optimising the ITR is important. Slow-moving inventory can quickly eat away profit margins as there are high operational costs. Hence businesses need to strike the balance between maintaining sufficient stock and avoiding excessive inventory.
Inventory Optimisation with Inventory Turnover Ratio: How?
Inventory Turnover Ratio is achieved by monitoring as well as improving the Inventory Turnover Ratio with strategic measures. Here are some practical steps:
Streamline Demand Forecasting
A good ITR relies on accurate demand forecasting. As businesses can predict customer demand better through historical sales data and market trends, analysing becomes easier. By combining Enterprise Resource Planning (ERP) software with more advanced analytics tools, companies can use these tools to predict things with incredible precision, knowing exactly what to produce and when.
Categorise Inventory Using the ABC Analysis
Not all inventory impacts sales equally. Based on items’ value and turnover, the ABC analysis helps businesses divide them into 3 categories and prioritise the high-value or fast-turning goods. For example, electronics retailers might classify fast-moving items such as smartphones as ‘A’ items and not forget to replenish them first, while ‘C’ items like accessories could receive much less frequent attention.
Improve Supplier Collaboration
Reliable suppliers play an important role in maintaining a good Inventory Turnover Ratio. Establishing good relationships with suppliers also means you have timely delivery, while you do not have as much safety stock as you would with poor relationships. Working with the region’s suppliers can guarantee efficient supply chains—the shorter the lead times and the lower the related holding costs.
Apply Technology for Real-Time Inventory Management
Inventory tracking in real-time is a powerful tool to improve the ITR. Today’s ERP software ensures real-time monitoring of stock levels, sales and supply chain activities. Businesses may promptly spot slow-moving products and implement remedial measures, such as offering discounts or promotions. Cloud-based ERP can help improve inventory processes effectively, freeing up capital for other business initiatives.
Let’s investigate the food and beverage (F&B) industry, which is particularly competitive in Singapore. Restaurants with perishable inventory must achieve a high turnover rate to avoid wastage. Using inventory management tools integrated into their ERP systems, many F&B outlets track usage patterns and adjust purchasing schedules to maintain optimal stock levels.
Read more: 4 Common Inventory Management Issues That Happen in Every Warehouse
Why Is a Balanced Inventory Turnover Ratio Important?
Even though a high ITR is a signal of efficiency, it must be achieved without jeopardising the customers. Stockouts brought on by overly aggressive turnover objectives might cost businesses sales opportunities. On the other hand, a low ITR may indicate inefficiency and higher holding expenses.
A retailer needs to make sure that they have stocked some of the most selling items, especially during peak seasons like festive periods. Companies having slow turnover cycles might focus on improving marketing efforts to enhance the rate.
ERP Software and Optimised Inventory Turnover Ratio
Today, ERP software is one of the most valuable tools for companies aspiring to enhance their Inventory Turnover Ratio. ERP systems offer a complete solution for inventory monitoring and optimisation by combining features like supply chain analytics, sales tracking, and inventory management. Features such as automation of restocking processes and real-time analytical reporting enable the organisation to be flexible, especially in uncertain markets.
Read more: All-in-One Guide to Inventory Management in Singapore
In addition, ERP software enables organisations to make better decisions on account of offering insights. People, companies and firms can recognise patterns easily, make forecasts on customer requirements and modify approaches consequently. Since the government provides digitalisation grants and schemes, ERP solutions for SMEs have become more affordable.
Furthermore, ERP software supports decision-making by providing actionable insights. Companies are able to recognise patterns, forecast demand, and quickly modify their plans. ERP system adoption is now easier than ever for SMEs thanks to government grants and programs that encourage digitalisation initiatives.
Conclusion
Inventory turnover ratio is an important metric that helps in improving inventory optimisation and thus improving the overall efficiency of the business. When applying key demand forecasting, stock classification, and real-time control through ERP programs, it is possible to increase ITR and create preconditions for further development. Businesses can improve their ITR and set themselves up for long-term success by using sound practices including demand forecasting, inventory classification, and real-time management via ERP software.
And for businesses which are interested in maintaining optimum inventory turnover, Synergix offers user-friendly, comprehensive and locally developed Enterprise Resource Planning solutions tailored to meet the unique needs of Singaporean companies. It is a central platform that unites inventory management, supply chain activities, and data analysis in one system.
- Real-Time Inventory Tracking and Alerts
- Customisable Modules (tailored to various industries such as retail, distribution, manufacturing, and F&B, ensuring specific needs are met)
- Demand Forecasting Tools
- Localised Compliance (meet Singapore’s legal requirements)
Synergix ERP eradicates manual overheads, streamlines processes as well as offers predictions through robust reporting tools. Businesses can increase productivity, cut expenses, and optimise cash flow by integrating inventory management with other operational tasks.
Upgrade your inventory with Synergix ERP, the powerful assistant in making sustainable improvements and operational excellence for your business.
