Inventory Turnover and Coverage Calculation Free Excel Template.
The next template is a project performed for a company with problems identifying which products had the highest turnover in order to begin inventory management improvements.
Many companies do not give importance to stock control while this metric is one of the most important when a company needs to improve the results.
An excess of stock can generate treasury problems, in other words, an excess of unnecessary stock reduces the liquidity of the company, a hole that needs to be covered with its own or external financing and that consequently will generate financial costs, as long as the company has access to external financing.
When purchasing material or products that are stored and not sold quickly, you have to pay for them within the terms established in the purchase, the supplier will not wait for us until the products are sold and we have enough funds to pay them. If the inventory spends in the warehouse longer than the supplier’s payment terms, it will possibly generate a financial cost unless we have sufficient funds to face the time lag.
It occurs frequently in companies that when performing a product’s profitability Pareto analysis, 20% of the products generate 80% of the profitability, the products with less profitability are those with the least stock turnover and consequently the higher value immobilize.
Every day that we have the products stored in the warehouse is money wasted. In addition, it is necessary to take into account the space used in the warehouse, the transportation and handling costs, the products can become obsolete or even be damaged or disappear.
If we use KPIs to measure inventory management, we will see that as higher is the inventory turnover, then better the stock management. We can also use the KPI coverage in days to know the number of days that we can cover sales with the available stock, unlike the rotation KPI, the lower the number of days of coverage, the more optimized we will have the stock level, but be careful with stock breaks, so a safety stock must be taken into account to avoid them.
All this translates into value, if we reduce the monetary amount of the inventories, the impact will be positive on the liquidity of the company and on the reduction of some costs.
For this reason, companies in the textile sector apply discounts in order to get rid of seasonal stock that would not sell at a regular price and thus obtain the necessary liquidity to face the following season.
Some companies even have stores to sell excess stock on a continuous basis, all with the aim of getting rid of low-turnover products and increasing liquidity.
This template will help you determine those products that really make money for the company and establish strategies for those products that generate high costs for the company.
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