Importance of Inventory Velocity

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Importance of Inventory Velocity
Rhoda Buunaaim, Student (MBA), Ghana

Why is inventory velocity so important in supply chain management?

Inventory Velocity
Eric Schmitz, Other, Belgium
Inventory velocity = the rate at which inventory (material) moves through the supply chain
Your cash flow situation and your working capital ratio will be healthier with increasing inventory velocity.
Be careful however. Include in your inventory velocity as well the inventory at supplier side (that part were you are responsible for legally or morally) as the waiting time at customer side.
Increasing inventory velocity will improve your cash flow and decrease your need for working capital.
Your cash flow will improve because the accounts payables and receivables will be much more balanced. And because there is less cash needed for working capital (to pay for inventories).
It is the task of supply chain management to provide the supply of materials and goods on an efficient and effective way.

Inventory Turn over Ratio
@Rhoda Buunaaim: Inventory is basically an asset in a balance sheet but it is actually a liability.
As we increase inventory velocity, the inventory turnover ratio increases and this helps in releasing cash. The material will not be lying unused for a longer period of time and the materials will keep on rotating.
You will find a company as Dell rotates its inventory every 2 days, which also gives them an edge to promise their customers that the chips inside are always the latest.



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