The importance of estimating product turnover times at the shipping dock cannot be underestimated. This is because product turnover times, also known as inventory turnover ratio, enable operations managers to understand better the frequency of how stock levels turn. Also, financial advisors, as well as buyers, can estimate when to order the replenishment stock to avoid stock-outs. Although distributors and wholesalers will always try their best to achieve the best results when estimating product turnover times, they are mostly faced by various challenges. This paper highlights some of the potential problems that distributors and inventory managers encounter when estimating the product turnover time, as well as the indicators that they should look out for to preempt these problems. to
Seasonality of some products affects the predictability of customer trends and turn. The customers’ demand for some goods from the distributors rises depending on various weather conditions. These conditions may at times be subject to variations which are exceptional for example the unexpected cool or wet summers. A good example of an industry affected by inventory seasonality is the Heating, Ventilation, and Air Conditioning (HVAC) industry. The industry has been experiencing cooling and heating systems with very different seasonal demand trends; hence they must be accounted for in the new financial year plans and inventory stocking policies.
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Obsolescence is another major challenge. It refers to a situation where stock becomes outdated hence cannot be sold. Most distributors view any inventory that has lasted for more than one year as obsolete, but it varies from one distributor to another and also the products being sold. Obsolescent inventory directly affects the balance sheet negatively such that it has to be written off or otherwise the company is given the product at a little price. It is important to track and understand the demand patterns for all inventory items to identify obsolete and excess inventory soonest possible.
ABC analysis is also a potential problem in estimating product turnover times. It refers to inventory that is categorized into groups A, B and C where group A has items that are in high demand. In most cases, a lot of attention will be focused on important items to make sure there is no shortage of stock that has high customer demand hence avoiding back orders and stock outs. ABC analysis also enables managers to place inventories in the optimal warehouse location to ensure effective order fulfillment hence saving on labor costs.
High carrying costs is also a challenge in estimating product turnover times. A business that has excess inventory whether it is sales that are lower than what was projected or poorly planned stock holding levels or even poor management of operations will experience a challenge in estimating product turnover times. Excessive inventory can also result from making bulky purchases from the suppliers and hence poor flow of cash. To offset carrying costs that are not necessary, companies need to keep all inventory levels lean.
The cost of the products is also another potential problem in inventory turnover estimation. High costs on products, especially on goods of ostentation results in slow carrying and turnover ratios (Silver, Pyke, and Thomas, 2016). This leads to putting excess working capital to inventory costs which pose a great inventory obsolescence risk. To avoid this situation, managers can use the ABC classification or ABC analysis. However, it is recommended that wholesale distributors do a rush orders for high items that are costly instead of keeping such items in the inventory. The main benefit of this method is that it is cost friendly.
In conclusion, it is evident that there are potential problems that accompany encounters in estimating turnover times by sampling the product at the shipping dock. However, the knowledge of the indicators of what can lead to such problems helps in preventing or even minimizing them.
References
Silver, E. A., Pyke, D. F., & Thomas, D. J. (2016). Inventory and production management in supply chains . CRC Press.
