Re: Inventory Turnover

What type of business are u, distribution or manufacturing. The reason I ask 
is that SA transactions are only based on sales of an end item or an SKU. u 
will not get inventory turns on purchased components or sub assemblies with 
an SA.

Also, you would have to remove from the SA any labor cost and outside 
operation costs to get to an inventory turn factor.

The basics of an inventory turn are the purchase $ of an item, a group of 
items or an entire inventory as compared to the amount of purchased cost $ 
relieved at the time of shipment.

e.g. in it's simplest form, your beginning purchased inventory at the 
beginning of a year is $1,000.00, you purchase $12,000.00 in a year for 
product, and at the end of the year purchased inventory you have $1,000, you 
have turned your purchase dollars 12 times per year.

If you have turned your purchase inventory into finished goods that have not 
sold yet, .. your purchase inventory turns to meet production in the above 
scenario is the same, but now you have to look at sales inventory turns using 
the same formula,...$1000.00 finished goods to start, make $12,000 of 
finished goods at materials cost, and sell only $6000.00, your sales cost of 
goods sold is only 6 times per year.

SO what are you measuring, .. purchase turns against production demands, or  
purchase turns against sales forecast. The purchase for production is a 
materials issue and purchase against production per sales forecast is a 
marketing issue.

Management in your firm has to be clear on what they are measuring and who is 
responsible.


Dennis Guy Vaillant