Instead of storing unneeded parts, fleet operations should focus on turning their inventory. Inventory turnover is the ratio of how many times a company has sold and replaced inventory during a given period.
Ideally, fleet operations should strive to turn their inventory four times a year. Keeping this ratio will benefit the operation’s budget and parts purchasing program.
How to Calculate Inventory Turnover
To be able to determine your inventory turnover ratio, you need to figure out a calculation to use.
Mathematical formulas can range per operation, but here is one example that can be used:
- First, calculate the average inventory. This can be done by taking the beginning inventory and adding it to the ending inventory, then dividing the sum by 2.
- Next, divide the amount of sales (or cost of goods sold) by the average inventory.
This result will provide you with an inventory ratio.
Inventory Turns Add Efficiencies to Parts Purchasing Programs
Tracking your inventory turns requires your operation to keep an updated parts inventory count. Having staff members perform inventory on a regular basis will allow fleet operations to identify how many of each part are in-stock. It will help identify if parts are over-stocked, under-stocked or obsolete. Knowing this will influence how many of each part to re-order to keep stocks at desired levels.
How Inventory Turns Can Improve Your Fleet’s Budget
Tracking inventory turns can help increase a fleet operation’s budget by influencing its pricing and purchasing methods. If ratios are low, operations can identify if pricing is too high and therefore limiting the amount of turns. It can also evaluate if the operation is purchasing too many parts, which could hinder its ability to turn inventory quicker. Keeping too many parts on shelves can create costs through over-purchasing and the labor to stock and store the parts.
Find out how RTA Fleet Management Software can help your fleet operation achieve at least four inventory turns a year during our Connect 1-Day event Oct. 2.