In this week’s class, we learned about Inventory Management “Inventory Score.” One important figure used to track inventories sold is inventory turnover rate. In order to determine how well a certain product is selling, companies count the number of additional orders that were placed in order to meet demand. Although I had already been introduced to this concept, I was able to correlate the reason behind sale periods from the examples shown in class.
Being a mall rat from a very young age, I’ve noticed stores hosting sales during particular times throughout the year. Mostly, people associate the reason behind these sales with stores trying to rid of their merchandise to prepare for the following season. But after this week’s class, I realized that an equally important reason for stores to have these sales is to boost their inventory sales on paper. Companies always want to show positive sales on their end of period reports. By boosting their inventory turnover rate, it appears that the company is selling a lot of inventory and generating lots of revenue. Another prime example is Boxing Day at the end of the year; companies lower their prices to increase the total number of inventories sold for that year.
The end of the year sale allows companies to use these inflated numbers on their reports, but in reality, each item generates less revenue which means that although the company sold lots and lots of inventory, they did not make as much revenue as it appears.