Four Inventory Turns Per Year Doesn't Cut It Anymore!
Four inventory turns per year doesn't cut it anymore, states Howard Coleman, principal of MCA Associates, a management consulting firm that works with distribution companies seeking operational excellence. In fact, that may be overestimating the inventory turns of a typical distributor, as he recently visited a few with 2.5 to 3.0 turns per year!
The cost of low inventory turnover is high and there are large savings as a result of optimizing inventory and improving inventory practices. Just by improving one turn, a typical distributor can save hundreds of thousands of dollars! Coleman illustrates this point another way. Let's say you turn inventory four times per year. In effect, you are being paid every 90 days! Would you be OK with getting your paycheck that infrequently?
There are several ways to increase your inventory turnover rate. In his article for Industrial Supply Magazine, Coleman describes how many Fortune 500 companies have transitioned to a "Pull" approach to inventory and supply chain management, replenishing inventory based on what was actually sold (the customer's buy signal), reducing replenishment order cycle times (compressing time), versus the "Pushing" of inventory into their stocking locations.
Tribute software is specifically designed for distributors' inventory requirements and offers several sophisticated calculation methods for buy quantity, forecasted lead time, and forecasted demand. With TrulinX Inventory Optimization features, you can group your items or product lines and manage them differently. Each group can have its own buying parameters, demand calculation, lead time calculation, and safety stock calculation for optimal inventory management.
Coleman also states the importance of partnership with your vendors. “More specifically, as it regards your focus on improving inventory turns, the ability to develop an understanding of total acquisition/ownership cost and how your supplier can impact total cost and improved inventory turns is surely one of my top criteria.”
Having an enterprise management software provider, like Tribute, that is proactively partnered with your suppliers enables you to reduce purchasing expenses and remove costs and errors from the supply chain. Tribute partners with suppliers like Bosch Rexroth, Eaton, Flexco, Garlock, Gates, Gould, Pall, Parker Hannifin, Sun Hydraulics, and Tuthill, among others to make your supply chain as efficient as possible.
Another way to move inventory is to utilize an inventory sharing network like WarehouseTWO, an internet-based service that allows any group of peer distributors to share their inventories, making it much easier to move infrequently sold items and fill backorders much more quickly, improving customer service. WarehouseTWO is integrated with Tribute software to make the process that much more efficient and is used by the Eaton Hydraulics Team, among others, to strengthen their distribution channel by leveraging its combined inventory for use by all distributors.
Most importantly, you should have an inventory management system (ERP) that has the sophisticated tools and partnerships that can help you increase your inventory turnover rates, like software from Tribute, Inc.
