How Fast Should My Inventory Turn?
The quicker inventory turns, the less cash you tie up.
The short answer is, "Most likely a lot more than you are now getting." I am always staggered by the amount of assets that are tied up in most companies' inventories, simply because the function gets virtually no management attention and is relegated to some junior individual. Distributors, retailers, and manufacturers all seem to view inventory management as a secondary function, yet it can be a gold mine of cash to be liquidated. In fact, by pulling a half million in cash out of the inventories of a troubled company I'd purchased, I bought the time I needed to correct the fundamentals of the firm.
For a specific answer, you have to consider many variables unique to your business. Also, a lot has to do with the strength of the inventory software being used, the frequency of reordering, and the sales volume per vendor. A more comprehensive answer is covered in a white paper on my Web site. (Disclaimer: Charles Bodenstab is the founder of MARS Software; MARS Software is referred to in the white paper on his Web site.)
