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Best Practices in Inventory Turnover for the Modern Manufacturer

By Anne Kaese | August 5, 2021

Improving inventory turnover is an ongoing process for all manufacturing operations. It is important to implement effective plans to optimize practices, ensuring you have the right level of inventory on your shelves at all times. Dynamics 365 can help you improve your inventory turnover process.

How to See Inventory Turnover in Dynamics 365

Inventory turnover is a financial ratio showing how many times a company has sold and replaced inventory during a given period. A company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand. Calculating inventory turnover can help businesses make better decisions regarding pricing, manufacturing, marketing, and purchasing new inventory. Companies must be able to move inventory, otherwise, it is incorrectly viewed as a fixed asset.

A slow turnover implies weak sales and possible excess inventory, whereas a faster ratio implies either strong sales or insufficient inventory. High volume, lower margin industries, such as retailers and supermarkets, tend to have the highest inventory turnover.

Selling Current Inventory

Distributed order management is a growing tool for businesses with multiple warehouses. In Dynamics 365, distributed order management profiles can be established with rules defining which warehouse a customer order will be shipped from. Orders can be fulfilled according to warehouse proximity, inventory levels, or inventory age. This improves supply chain efficiency and better meet customer expectations.

Downtime issues can be viewed in maintenance request management analytics. Knowing which machines have frequent downtime can impact how inventory is planned and stored.

 

Best Practices for Inventory Turnover with Dynamics 365

  • Set up your master plans and review them often – Review item master data, item coverage, and coverage groups on a regular basis and change if needed. A review plan should be in place and occur regularly.
  • Implement your forecast process – AI technology and algorithms in D365 help optimize forecasts with predictive analysis. This technology also allows users to make informed decisions based on past statistics.
  • Intercompany processing – Businesses across the world have stratified their production. With this approach, one area of the business will do something very well, as opposed to every part of the business attempting everything. Stratified production is part of an intercompany supply chain.
  • ABC analysis – ABC analysis allows managers to focus on what matters most. “A” parts constitute 20% of parts but 80% of output. “A” parts typically have a high cost, long lead time, are a tricky buy, and/or will halt downstream operations if supply runs out. These are the most crucial items to the production and distribution supply chain. “B” parts are less critical but still important. They either have a low cost or are easy to obtain. “C” parts are the least important, but they should still be regularly reviewed. “A” items tend to have high turnover rates whereas “C” items tend to have low turnover rates.
  • Cost administration functionality – The cost administration functionality gives users tools to analyze where inventory is, as well as insight into what must be done to move inventory. Within cost administration, inventory accounting status offers useful graphics and charts. Information on inventory accuracy, inventory turnover ratio, and days inventory on hand is all stored within inventory accounting status. This is helpful information when it comes to managing a balance sheet. Manufacturing accounting status, which is also under the cost administration functionality, shows the WIP turnover ratio.

Are you a manufacturer looking to get the most out of Dynamics 365? Reach out to us for help, or consider registering for our upcoming webinars.

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