Low inventory is a term anyone who deals with inventory is familiar with. Whether you’ve dealt with an inventory program, an inventory management app, or beverage inventory software, low inventory is on your radar. If you’re still learning how to do inventory, low inventory is something you need to learn all about.
Today we’ll go through the meaning of low inventory. We'll cover what it means for your restaurant or bar business, and what you need to look out for when you take inventory. Low inventory is a part of your business no matter what. With this knowledge, you’ll be ready to handle the lows and prepare for high profits.
What Does a Low Inventory Turnover Ratio Mean?
A low inventory turnover ratio is the ratio of how much inventory you bring in compared to how quickly you sell through your inventory. A low inventory turnover ratio has intrinsic ties to the inventory definition. It’s vital to having an understanding of how your business is doing.
A standard inventory turnover ratio is doing well if it’s somewhere between two and four. To explain those numbers, we’ll take a look at the inventory turnover ratio calculation. The calculation is:
Cost of goods sold / Average inventory for the same period of time = Inventory turnover
You base the calculation on the average inventory because the inventory count may see minor changes throughout the year. The average, however, generally stays fairly consistent year over year.
If the number shows that your inventory isn’t seeing a high turnover rate, it’s time to reevaluate your inventory practice and sales techniques. A perpetual inventory system can help with a continual reevaluation to stay on top of inventory.
What Does Low Inventory Mean?
The low inventory definition is any moment when your inventory dips below a normal fluctuation. As you sell products each day your inventory will get lower by an amount you can set your watch to. However, there will be times when your inventory is lower than you would consider normal.
While you want to sell through your inventory on a regular basis, a shockingly low inventory count could cause some concern. The reasons for a potential low inventory are things you should look out for, including:
- Supply chain issues
- Breakage and loss
- Improper storage resulting in loss
As long as you’re aware of the causes behind inventory count fluctuations, you’ll be able to deal with low inventory situations. An inventory cycle count system can help you stay on top of it.
Do You Want Inventory Turnover To Be High or Low?
Ultimately you want inventory turnover to be high. A high inventory turnover means you’re consistently selling the products you have on hand. This is good for you, your customers, and your suppliers–and the supply chain as a whole.
To keep your inventory turnover high, the best things you can do are:
- Keep up with inventory counts to be aware of what you have on hand.
- Maintain sales and marketing tactics to keep products moving.
- Invest in customer service training.
With those practices, you’ll be able to maintain the highest possible level of control over your inventory turnover rate. You’ll be doing everything you can in every area with a direct effect on your sales.
6 Reasons For Low Inventory Turnover
Of course, there will be times when inventory turnover is low. When that happens, you’ve got to figure out whether it’s something you’re doing, or an external issue. If it’s because of you, you can use sales and marketing tactics to support your business while you sort it out. However, if it’s an external force, all you can do is learn more and wait it out.
These six potential reasons for low inventory turnover are a mix of things you can control, and some that you can’t. They can happen for a variety of reasons, with or without warning. The more you know about them, the better you can prepare for them.
6. Merchandising Mishaps
A variety of merchandising and marketing techniques go into every decision you make in setting up your business. Mishaps in that arena can happen by accident, or an old practice could suddenly become outdated. A watchful eye on your marketing plan will help you avoid these situations.
5. High Cost Products
When you stock high cost products, your sales on those products will naturally be a bit lower than sales on lower cost items. Of course, your sales on those items will be worth it. When you see this creating low inventory turnover, be aware of it. However, you don’t have to worry about it unless you see a substantial decline in sales over several months.
4. Low Demand
There are going to be items you sell that will go through periods of low demand. Alcohol could be less sought after at the beginning of the year. Seasonal items will only be in high demand at certain times. The best way to counter this type of low turnover is to take care with the quantity of these items in your inventory.
3. Bulk Buying
Making bulk purchases-potentially made with flat rate shipping-can be a great way to stock up on items you’ll always need. However, it’s also a way to add to your inventory without intending to run out of those items any time soon–to have safety stock on hand. This is a good cause behind a low inventory turnover, but it’s definitely important to be aware of.
2. Disorganized Inventory
If your inventory space is disorganized, you may find a low inventory turnover occurring. This is because items aren’t coming up in your active inventory count, and therefore aren’t being sold. Being aware of everything in your inventory is the first step towards a great inventory turnover ratio. Keeping your inventory organized is the best way to do that.
Seasonal items and seasonal demands is one of the top reasons behind low inventory turnover that is out of your control. You can’t change the seasons, and you can’t make people want to buy pumpkin spice cocktails in the summer. What you can do is tie this strategy into your plan for low demand items. With that plan, be sure to only stock what you need for seasonal items. Restaurant POS systems and sales tracking can help.
Frequently Asked Questions About Low Inventory
Low inventory is a taboo word in the world of sales and customer service. It can be daunting to deal with low inventory and low inventory turnover. Because of that reputation, however, it’s important to dive into low inventory. That will help you prepare for it when it comes around. Our answers to these frequently asked questions will help you prepare for those inevitable interactions with low inventory.
What is Causing the Low Inventory?
Low supply and high prices are the main causes of low inventory. When items have a high demand placed on them, the price skyrockets. That makes it harder for everyone to stock up on the inventory they’re looking for. This isn’t restaurant or bar specific either, a low supply and high cost can wreak havoc on inventory in any industry.
How Do You Deal With Low Inventory?
When you’re facing low inventory, the best thing you can do is stick it out and work with what you’ve got. That could mean experimenting with new inventory products, and switching up your menu to match. Ultimately, a low inventory period is the time to stick to your guns and find creative solutions to make it through.
What Is Supply Shortage?
Supply shortage is when the production and exportation of a specific product is put at risk. Supply shortages can show up with:
- Products that are hard to produce.
- Products that heavily depend on other factors.
A supply shortage can directly affect your inventory for a few weeks to a few months. It can even get into years depending on the product. It’s something to be aware of, and to have a backup plan for when it comes around.
Low Inventory: Raise Those Rookie Numbers
Whether you’re dealing with low inventory or a low inventory turnover ratio, staring at low numbers can a bummer for your business. Don’t let it get you down! The best thing you can do when you’re struggling with inventory is to keep up the practices that will work in the long run. You can always come back to the BinWise blog to check up on those practices and to find new ideas.