Improve business performance. Free up cash. Grow your bottom line. How? By analyzing your inventory turnover. Once you predict what you need and when you need it, you can use revenue as operating capital instead of spending it to support inventory sitting on a shelf.

          Inventory turnover is a conventional benchmark that reveals a company's inventory-management efficiencies compared with industry standards. "One of the advantages of this measure is that it's straightforward. Plus it's easy to research and calculate," says Dr. Ernie Nichols, associate professor of Supply Chain Management and director of the FedEx Center for Supply Chain Management at the University of Memphis. Although there are several ways to calculate inventory turnover, Nichols references this as the most common formula:

              Costs of Goods Sold (COGS) / Average Inventory at Value = Inventory Turnover
       Typical causes of sluggish inventory turnover
       Too much inventory means too much cash tied up in inventory. "I tell my students that   businesspeople would focus more on inventory if, instead of seeing pallets of boxes in a warehouse, they imagined pallets of money," says Nichols. "Inventory is like insurance — do you have the right coverage?"

      Small businesses amass excess inventory for a variety of reasons:

      They worry about losing a sale if an item isn't in stock.
      They buy too much because volume discounts seem like a good way to save money. 
      They keep more on hand because the supplier is unreliable.
      They don't plan for, or measure, inventory levels and sell-through rates. 
      Tips for optimizing inventory turns
       Changing the way you manage your inventory can make the difference between watching your bottom line grow and sitting on your cash waiting for better turnover. "Think 'just in time' rather than 'just in case,' " suggests Wendi Nolan, an international marketing advisor for FedEx SupplyChain®.

      Try these tactics to take on your inventory management challenges: