Supply chain-Have supply chain delays, shortages or lack of visibility partly led to this? Sales-Are our salespeople performing below par? Should we provide missing tools or training for our inventory turnover ratio? Pricing-Is our pricing too high? Should we discount some products or bundle them to clear out some stock? Marketing-Are customers buying less? Are we offering the right product mix? Should we change our offer for future sales? Should we invest more in promotions to support sales? If your turnover ratio is lower than the benchmark for your industry, you should be asking yourself some questions about your company: You could turn some of your obsolete inventory into cash by selling it off at a discount to specific clients. Monitoring the inventory turnover ratio helps businesses make better decisions.įor example, if you analyze your purchasing patterns as well as those of your clients, you could find ways to minimize the amount of inventory on hand. Why is the inventory turnover ratio important? The standard method for calculating inventory turnover ratio involves selecting from your balance sheet the cost of goods sold (COGS) and dividing it by your average inventory value. How do you calculate the inventory turnover ratio? “Your goal as a business owner is, generally speaking, to turn inventory into cash-the quicker the better,” says Alexandre Barros, a business advisor with expertise in financial management and controls at BDC Advisory Services. help you see if you're missing out on sales opportunities.enable you to see where you might improve your buying practices and inventory management.point to the health and competitiveness of your company.Measuring how efficiently you’re using your inventory can: Inventory turnover can also be called stock turnover, merchandise turnover, inventory turns and, simply, turns.Īssessing your inventory turnover is important because gross profit is earned each time such a turnover occurs. This ratio is a good indicator of inventory quality (whether the inventory is obsolete or not), efficient buying practices and inventory management. The inventory turnover ratio measures the number of times inventory has been sold and replaced, that is, turned over in a given period of time. Growth & Transition Capital financing solutions
Kauffman Fellows Program Partial Scholarship Venture Capital Catalyst Initiative (VCCI) They “purchased” it at point of use in WIP, and immediately shipped the finished goods… so (in my view) their “turns” was phony.Industrial, Clean and Energy Technology (ICE) Venture Fund They manufactured Pool Pumps… OH… did I mention that the “Inventory” was supplier managed? So… their “Inventory” was not really ever inventory. I once had a customer who bragged about their inventory turns of 220 (basically daily turns), but then I saw their Inventory of purchased motors.
(which is typically hidden in a pure Inventory report.) Also, in an MTO world, you have to be careful because inventory “Should” include WIP value. if you ignore total inventory of raw materials, and look only at the finished goods, their turns would be incredibly high (good) becuase nothing is ever in stock. I can see how Distribution companies would/could have a different measurement than manufacturing companies… But, I know of multiple manufacturing companies where they have a small number of finished goods parts that actually ship (fixed asset companies) but MANY raw materials that make up their inventory. this 4th example is fairly easy to do with a BAQ… calculating for a year would take a more more complicated, and in reality needs to have a table (executive query table?) that captures the month end inventory numbers each month, so that you could get the “average monthly value of inventory”. So… if you always build up inventory to the same value as you sell each month, then you will have 12 turns, because you build the inventory, then sell it.īut, if at the end of each month, you always have enough inventory to sell for one year, then you only have one turn.īelow is a screenshot of attached spreadsheet that you can use to do some playing… the first three tables show various examples of 12 turns, 1 turn, and 144 turns… the 4th table shows how you can theoretically calculate turns using only one months worth of data… you can do this by taking COGS for the month, Multiplying by 12 (to extrapolate Yearly turns) and then dividing that by the month end inventory.
Here is the way that I have always understood Turns… it is the Number of times that you turn over inventory during a set period.
0 kommentar(er)
