|
|
|
|
Turn your inventory before it turns on you.Inventory turns are a measure of how rapidly things are used or are sold. Inventory turns are calculated by dividing the average annual cost of goods sold by the average inventory. For example if sales (cost of goods sold) are $10,000,000 per year and the average inventory is $2,500,000, we divide the former by the latter to learn that the inventory is turning (being sold) 4 times per year. In other words, the company maintains an average of three months inventory on hand. Typical manufacturing companies may have 6 turns per year and high-volume, low margin/high volume companies like grocery stores and computer assemblers have 12 turns per year or more. Dell Computer, for example has in excess of 30 turns. Your annual profit margin is a multiple of the number of turns per year and the net margin per inventory dollar. The higher the turns per year the higher the return on the inventory investment. Some products may turn rapidly but others only 1 time or even less. Those slow moving products really slow things down, taking up space and costing a lot of money. Either discontinue or reduce inventory quantities of slow movers to improve turns overall. Analyze everything including subcategories to find the secrets. By taking this example (described here) from 4 turns per year to 5.7 turns (closer to industry average) the cost of inventory would be substantially reduced, profits increased, and cash flow improved. You can manage only what you can measure. Calculate turns for everything
what you buy and sell. The findings can be empowering.
Learn more about improving your inventory turns and improving profitability with
the powerful and empowering book
|
Cost Reduction & Profit Improvement
|
