The life and death of a company is determined by its turns. Turns is how many times in a given period a company sells through its stock.
Billy-Bob keeps four 14 inch white-wall, Mud Gripper tires in stock. Each month he sells twelve of these. This means he turns his stock three times each month. The higher the number of turns, the greater the profit.
As long as Billy-Bob is never out of stock when a customer wants this particular tire it would appear that he has a pretty good handle on his turns. If he were to increase his inventory to thirty tires, then he would not be turning his stock each month and is paying too much in inventory. There is a fine art to turns but with today’s modern software programs it is easier to keep up with this than in days of old.
I have worked with a group of people who seem to love to buy baseball caps to sell. If a salesman comes along with a load of caps to sell, they will buy them if they get a good price. Then, the caps sit and gather dust for months. Eventually, years later, the caps will almost be sold out and along comes another salesman and the whole thing starts over. They don’t seem to understand that they are losing money on this.
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