With rapidly shifting costs for raw materials and transportation, it is more important than ever to have fluid working capital. Many manufacturers struggle to have flexible funds because a significant portion of their capital is invested in inventory that’s sitting in their warehouses. The faster you can sell or use these items, the better it is for your business and your bank account. In this article, we will go through how to use product life cycle to manage your inventory turnover and improve your inventory turnover ratio.
What is an inventory turnover ratio?
The inventory turnover ratio is meant to help you quantify your inventory management efficiency. You can find it by calculating the number of times you buy and replace (or turn) your inventory over a certain period of time (usually a year).
Know your inventory items’ position in their product life cycle
Demand for your products will naturally change over time. These changes happen for anticipated reasons, such as the seasons changing, because of unexpected global events, and because of your inventory’s position in its product life cycle. Most products start with growing demand when they are new and gaining popularity, but that demand tends to level off and decline over time. Because each of your products has different specifications and was released at a different time, each has a different product life cycle with its own demand patterns/types. If you want assistance organizing product life cycle data for analysis in your ERP, our consultants can help. At Datix, our team takes a business-first approach to learn exactly what each of our clients’ needs so we can best support their growth.
How can you use product life cycle to manage inventory? Focus on items beginning to enter their decline stage and monitor their demand closely. This way, you can implement strategies to reduce stock levels well in advance of the item becoming obsolete and undesired by customers.
A few strategies you can try are reducing your reorder quantities and levels of safety stock, adjusting your marketing campaigns or pricing tactics to increase demand, and pushing to move the stock faster while your customers still have some interest in the item. Sometimes, it can be hard to know what approach is best to sell a product in decline. A trusted ERP consultant like Datix can help you analyze your products’ product life cycles and demand patterns against industry trends to find the right strategy using your ERP data. With 25 years’ experience supporting manufacturers, our team has a proven track record of doing whatever it takes to support our clients as their products and businesses evolve.
Managing inventory turnover is one of the most fundamental challenges of any manufacturer but setting up your ERP to support your inventory and business needs will make this process easier.
With 25 years of experience, we understand what it takes to maximize software. Datix will work with you to understand your unique business needs to support your goals. Our team of experts promises to be by your side throughout your implementation and beyond.