Mariano Rodriguez’s Post

🇬🇧 Fast moving vs slow moving products In every business that deals with inventory, there are products that move quickly off the shelves, known as fast-moving products, and others that tend to stay in stock for more extended periods, known as slow-moving products. Fast-moving products: Fast-moving products are items that experience high demand and are sold relatively quickly after being stocked. These products are often the most popular, and customers frequently purchase them due to factors like seasonal trends, popularity, or necessity. High turnover: Fast-moving products have a high inventory turnover rate. This means they are sold and restocked frequently, which helps generate consistent revenue. Minimal holding costs: Since these products sell quickly, businesses don’t incur significant holding costs or the risk of items becoming obsolete. Inventory replenishment focus: Businesses need to monitor the stock levels of fast-moving products closely to avoid stockouts and ensure a steady supply for customers. Slow-moving products: Slow-moving products, in contrast, are items that have a lower demand rate and take longer to be sold or used. These products might include niche or specialized items that appeal to a smaller customer base. Low turnover: Slow-moving products have a low inventory turnover rate. They remain in stock for more extended periods before being sold, tying up working capital. Higher holding costs: Keeping slow-moving products in stock for extended periods can lead to increased holding costs and the risk of inventory obsolescence. Discounts and promotions: Businesses may offer discounts or promotions to move slow-moving products and free up storage space and capital. Inventory management challenge: Managing slow-moving products requires careful planning and analysis to avoid overstocking and potential losses. Balancing fast-moving and slow-moving products: To achieve an optimal inventory management strategy, businesses must find a balance between fast-moving and slow-moving products. This involves: Data analysis: Analyze sales data to identify which products fall into each category and understand the factors influencing their movement. Forecasting: Use historical data and market trends to forecast demand for both fast-moving and slow-moving products accurately. Inventory segmentation: Categorize inventory based on its movement rate, and implement different stocking and replenishment strategies accordingly. Promotions and discounts: Strategically promote slow-moving products through marketing initiatives, sales, or bundling offers. Continual review: Regularly review inventory performance and adjust strategies as market dynamics change. By effectively managing both fast-moving and slow-moving products, businesses can optimize their inventory, reduce holding costs, and provide better customer service, ultimately leading to improved profitability and sustained growth. #marcocaineroattitude #branding #economics

How to plan (Part 1). Just as you shouldn’t be driven by stock outs, you should not let your forecasting be driven by buying cycles. Let me explain… You need to develop a forecast of your demand not just for one item but for all of them regardless of supply source. You also need to review and update this periodically as things change. As I mentioned before, your forecast (what you will need) drives the simple arithmetic of your purchase calculations. (Buy Qty = What you need – What you have). How often should you review your forecast? For most businesses it is done monthly but can be any period that makes sense in your context. More frequently if the market is very dynamic, less frequently if the market is steady. The forecast review period is also called the planning period. Even though you forecast monthly you might buy fortnightly or weekly or quarterly. The aim of frequent planning reviews is to keep an eye on the market so that you can expedite or place an extra order if it heats up or delay or cancel a purchase order if it slows down. If you have a lot of items, reviewing all of them every period can be a big job, too big maybe, so you need some help or cheat codes. One cheat code is to apply an ABC categorisation to your items. A items move fast and sell a lot so they really matter. Definitely review them monthly. B items are slower but still important enough that if you don’t keep an eye on them things can get away from you. Review them less frequently if you need to. C items barely matter, you need to have them, but they sell slowly and are not critically important to your customers and have a low stock value. They might only need reviewing annually or biannually. How you split up your ABCs is up to you, but commonly A items are 70%-80% of your sales, B items15%-20% and C items 5%-10%. Help will come in the form of a big spreadsheet or specialised inventory planning software that can automate the forecast review process and highlight over/under stock issues as they occur or prevent them from occurring. Once you switch your process from wondering what to buy and being surprised by out of stocks to focusing on forecasting, it makes you calm and in control. Just buy what you calculate based on the forecast you have carefully considered to the best of your ability. If you’re struggling with inventory planning or warehouse management and want to talk to someone, I’m here to help and you can book a call with me by clicking the link on my Linked in profile. #inventory #warehouse

Turnover Ratio 📌Inventory turnover, also known as inventory turnover ratio or stock turnover 📌It Is a financial metric that measures the efficiency of inventory management by determining how quickly a company sells and replaces its inventory within a given period. 📌It provides insights into how well a company is managing its inventory investment. 📝The inventory turnover ratio is calculated by: 🔲Dividing the cost of goods sold (COGS) by the average inventory value during a specific period 🔴 when calculating the inventory turnover ratio, the Cost of Goods Sold (COGS) used in the formula should typically represent the cost associated with the finished products only. 🔴The purpose of using COGS in the inventory turnover calculation is to measure how efficiently the company is converting its inventory into sales and generating revenue. 🔴By focusing on the cost of finished goods sold, the calculation provides a direct measure of the inventory turnover ratio for the company's core products. 🔴It excludes costs related to other inventory categories, such as raw materials, work-in-progress, or components that have not yet been transformed into finished goods. ⚪The average inventory value used in the inventory turnover formula should typically encompass the total value of all inventory, including both finished products and any other inventory items that are part of the company's operations. ⚪It allows for a more accurate representation of the company's inventory turnover. ⚪By using the total inventory value, the inventory turnover ratio takes into account the entire inventory holding cost and provides insights into the overall effectiveness of inventory management in terms of optimizing working capital and meeting customer demand. ⚪In certain specific cases or industries where different inventory categories have significantly different characteristics or turnover patterns, it may be useful to calculate separate inventory turnover ratios for specific inventory segments (e.g., finished goods, raw materials). 📌Here's a step-by-step guide on how to calculate inventory turnover: 1. Determine the Cost of Goods Sold (COGS): COGS can be found on the company's income statement. 2. Calculate the Average Inventory Value: Determine the average inventory value by adding the beginning inventory value and the ending inventory value for the period and dividing it by two. 📝Average Inventory = (Beginning Inventory + Ending Inventory) / 2 3. Divide the COGS by the Average Inventory 📝Inventory Turnover = COGS / Average Inventory 📌The resulting inventory turnover ratio represents the number of times the inventory is sold and replaced during the specific period. 📌A higher inventory turnover ratio generally indicates more efficient inventory management. 📌However, the ideal inventory turnover ratio can vary across industries #supplychain #inventorymanagement #planning

#INVENTORY_MANAGEMENT_KPIs: KPIs are metrics used to evaluate the efficiency and effectiveness of inventory control processes. Here are some important KPIs: 👇👍✌️ 1). #Inventory_Turnover_Ratio (#ITR) : Measures how often inventory is sold and replaced over a period. A higher ratio indicates efficient inventory management. ITR = Cost of Goods Sold (COGS) / Average Inventory 2). #Days_Sales_of_Inventory (#DSI) : Indicates the average number of days it takes to sell the entire inventory. DSI = (Average Inventory / COGS) * 365 3). #Return_on_Investment (#ROI) : Assesses the profitability of inventory by evaluating the gross profit earned for every dollar of inventory investment. ROI = Gross Profit / Average Inventory Cost 4). #Stockout_Rate : Measures the frequency of stockouts, indicating how often inventory levels are insufficient to meet demand. SR = (Number of Stockouts / Total Orders) * 100 5). #Order_Cycle_Time : The average time taken to fulfill an order from the moment it is placed until it is delivered to the customer. OCT : Total Order Fulfillment Time / Number of Orders 6). #Carrying_Cost_of_Inventory : The total cost of holding inventory, including storage, insurance, and opportunity costs. (Inventory Holding Costs / Average Inventory Value) * 100 7). #Service_Level : Measures the ability to meet customer demand without a stockout. It is often expressed as a percentage. SL = (Number of Orders Fulfilled Without Stockout / Total Orders) * 100 8). #Reorder_Point (#ROP) : The inventory level at which a new order should be placed to replenish stock before it runs out. ROP = Lead Time Demand + Safety Stock 9). #Return_on_Assets (#ROA): Indicates how profitable a company is relative to its total assets, including inventory. ROA = Net Income / Total Assets 10). #Backorder_Rate : Measures the percentage of orders that cannot be filled at the time of purchase and are placed on backorder. (Number of Backorders / Total Orders) * 100 11). #Average_Inventory : The average amount of inventory held over a certain period. (Beginning Inventory + Ending Inventory) / 2 12). #Obsolete_Inventory : The amount or percentage of inventory that is no longer sellable due to being outdated or expired. (Value of Obsolete Inventory / Total Inventory Value) * 100 These KPIs help businesses monitor and improve their inventory management processes, ensuring they maintain optimal inventory levels, reduce costs, and meet customer demand effectively. #inventory #InventoryManagement #Procurement #ProcuretoPay #Stock #Storage #StorageManager #warehouse #warehousing #Packaging #KPI

What is aged inventory? Aged inventory refers to low-demand products that sell slowly or don’t sell at all. These items are problematic for retail brands’ financial health because they tie up working capital in unsold merchandise and collect expensive carrying costs that shrink profit margins. What is an inventory aging report? An aged inventory report (aged stock report) is a financial report that measures the average number of days inventory sits unsold in your warehouse. An aging inventory report is used to identify slower-moving SKUs and build strategies to increase the inventory turnover ratio and reduce dead stock. Typically, aged stock reports are relatively simple and list: Your SKU variants Number of units available per SKU Average inventory age of those units You can generate these reports manually using spreadsheets and routine inventory audits. However, this approach is tedious, time-consuming, and prone to human errors. The use of inventory management software or optimization tools  automatically generate aged inventory reports in real-time. Why is an aged inventory report important? Knowing the age of your inventory empowers you to make smart buying decisions and protect your business bottom line. Here’s how analyzing the aged inventory report can help you Identifies slow-moving and unsellable products When you regularly run an aging inventory report, you can identify which products turnover slowly and which aren’t selling or being used . Offers insight into customer demand Knowing your stock’s age provides valuable insights into your customers’ demand. And you can use these insights to build more accurate inventory plans based on what customers actually want Enables informed decision-making Knowledge is power, so they say. And knowing your stock age is no different. Helps anticipate potential cash flow issues Inventory that just sits in your warehouses ties up working capital and racks up holding costs. And ultimately, it slows down your cash flow. How to calculate stock age with the age of inventory formula To calculate your stock age, use the average age of inventory formula: average age of inventory = (average inventory cost / cost of goods sold ) x 365 days In this formula: 4  best ways to reduce the average age of inventory Understanding the average age of your inventory helps business owners identify low-performing SKUs, better predict customer demand, and lose less capital to the wrong products. But only if they use that information to reduce their aging inventory. below are some of the methods that can be used 1. Streamline communication between warehouse and purchasing 2. Perform regular inventory audits 3. Investigate reasons behind low sales volumes 4. Improve demand forecasting #inventorymanagement #warehousemanagement #purchasing

Inventory Metrics: Sales KPIs, 1-Inventory Turnover Rate Also known as inventory turnover ratio or inventory turn, inventory turnover rate is the number of times a company sells and replaces its stock in a period, usually one year formula to calculate inventory turnover rate: Inventory turnover rate = cost of goods sold / average inventory 2-Days on Hand Days on hand (DOH), also known as the average days to sell inventory (DSI) or average age of inventory, is the rate of inventory turns by day. This daily interval is the most common timeframe after an annual range. Use this formula to calculate days on hand: Days of inventory on hand = (average inventory for period / cost of sales for period) x 365 3-Weeks on Hand Weeks on hand demonstrates the average amount of time inventory sells per week: a high weeks on hand measure shows inefficient movement, while a low weeks on hand rate shows efficient inventory movement. Use this formula: Weeks on hand = (average inventory for period / cost of sales for period) x 52 4-Stock to Sales Ratio Stock to sales ratio is the measure of the inventory amount in storage versus the number of sales. This broad calculation can be used to adjust the stock to maintain high margins. Use this formula:Stock to sales ratio = inventory value / sales value 5-Sell-through Rate Sell-through rate is a comparison of the inventory amount sold and the amount of inventory received from a manufacturer. This helps demonstrate the efficiency of a supply chain. Here is the formula to calculate sell-through rate: Sell-through rate = (units sold / units received) x 100 6-Backorder Rate Backorder rate is a measurement of the number of orders a company cannot fulfill when a customer places an order. It shows how well a company stocks in-demand products. Calculate the backorder rate with this formula: Backorder Rate = delayed orders due to backorders / total orders placed) x 100 7-Accuracy of Forecast Demand Accuracy of forecast demand, also known as the demand forecast accuracy, is a percent of how close the actual on-hand quantity is to the forecast. It checks on what a company forecasted, ordered and sold in the prior period. Use this formula to calculate the accuracy of forecast demand: Accuracy of Forecast Demand = [(actual – forecast) / actual] x 100 8-Gross Margin Return on Investment Gross margin return on investment (GMROI) shows how much a company made compared to how much it invested in stock purchases. This metric measures how efficiently a company buys and sells its products. Use this formula to calculate gross margin return on investment: Gross margin return on investment = gross margin / average inventory cost

💥Explain Inventory Turnover Ratio with proper example💥 The inventory turnover ratio is a financial metric that measures how efficiently a company manages its inventory. It calculates the number of times a company sells and replaces its inventory during a specific period. ✍️Inventory Turnover Ratio**: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory Here's an example to help explain the inventory turnover ratio: Let's say Company A is in the retail industry and sells clothing. At the beginning of the year, Company A had $500,000 worth of inventory. During the year, it sold $2,000,000 worth of clothing, and at the end of the year, it had $600,000 worth of inventory remaining. To calculate the inventory turnover ratio, we first determine the average inventory for the year. We add the beginning inventory ($500,000) to the ending inventory ($600,000), and divide it by two to get the average inventory ($1,100,000). Next, we divide the cost of goods sold (COGS) by the average inventory. The COGS is the total cost of the inventory sold during the year. Let's assume it is $1,500,000. Inventory turnover ratio = COGS / average inventory = $1,500,000 / $1,100,000 ≈ 1.36 In this example, Company A has an inventory turnover ratio of approximately 1.36. This means that, on average, the company sells and replaces its entire inventory 1.36 times over the course of the year. A high inventory turnover ratio indicates that a company is selling its inventory quickly and efficiently. It suggests that the company is effectively managing its inventory levels, avoiding overstocking or obsolescence. However, a very high ratio might also indicate that the company is running the risk of not having enough inventory to meet customer demand. On the other hand, a low inventory turnover ratio indicates that a company is not effectively turning its inventory into sales. It could be a sign of overstocking or poor inventory management. This may tie up the company's resources in inventory and result in higher holding costs. The inventory turnover ratio is essential for assessing the efficiency and effectiveness of inventory management within a company. It can be used to compare a company's performance against industry benchmarks or to track changes in inventory management practices over time. #research #dataanalysis #business #statistics #software #health #data #finacialplanning #financeaccounting #acccounting #finance #dissertation #quantitativeanalysis #methodology #businesswriting #academicwriting #writing #writingtips #writerscommunity #writingadvice #write #writingmotivation #reconciliation #compoundinterest #SimpleInterest #FutureValueofAnnuity #PresentValueofAnnuity #NetPresentValue(NPV) #EarningsPerShare #InternalRateofReturn #PricetoEarnings #DebttoEquityRatio

Question from office hours yesterday: I understand that Inventory Turns tells me how fast I’m selling the inventory my company holds. What is the best number of Turns of Inventory, and can my “Turns” be too high? Answer: Great question, because people always say that the higher the number of Turns the better, and that’s not always true. Let’s mention a few ways that people do the calculation incorrectly, and why it’s important to do it right. Two common mistakes on the calculation are: 1. Using sales as the second number in the calculation instead of COGS (Cost of Goods Sold). The issue here is that your inventory is valued by acquisition cost or market value. If you use sales instead of cost, you are inflating the ratio, which will likely make you feel better than you should. 2. Using inventory value at a moment in time, rather than average inventory.   When doing this calculation, you are comparing two numbers, COGS and Inventory. You are measuring the performance of your Inventory Management over a period of time.  The COGS number is the cost of the inventory that you’ve sold over that period of time, so you need to look at the average value of the inventory you’ve had over that same period. Using a different time period for COGS and Inventory Value gives you a meaningless result. Now to the question – A good Inventory Turnover Ratio is between 5 and 10 times for most industries, but you need to compare this number either to other companies in your industry, or to your own historical numbers. The type of company has a dramatic effect on the ratio. If your inventory turns are really low – let’s say between 1 and 2 times a year, it can indicate either poor sales, or a lot of excess inventory. If your turns are really high – let’s say between 15 and 20 times a year, you either have very strong sales, or are not effectively managing your inventory, which might lead to out of stock situations and loss of sales. 

Slow-Moving Inventory: Identify, Manage & Prevent It Slow-Moving Inventory: Identify, Manage & Prevent It Slow-moving inventory is a problem many businesses deal with from time to time. The challenge is knowing what to do about it, since the reasons sales may slow for a particular product can vary significantly — and the solution must match the cause. Knowing how to identify slow-moving products in your business, find the underlying cause and address the problem is an important skill set to have when selling physical products. What Is Slow-Moving Inventory? Slow-moving inventory is inventory that's taking a long time to sell. That may sound too vague to be helpful, but truth is that "slow-moving" is going to be defined differently for different industries, companies, and even for different products within the same company. Common definitions say things like, “inventory that's been in stock for over X days” where X is usually 90 or 120 or 180. But a business selling baked goods or dairy products certainly can't keep items on shelves for 80 days and expect them to remain viable for sale. Even some companies whose products don't spoil can't wait 90 days to determine whether inventory is slow-moving or not. If a company knows roughly how many units it should be selling each week or month, it can look at the rate of sales for a product instead of time spent in inventory, which will give it an earlier heads up than inventory metrics. This method of identifying slow-moving inventory can be trickier, though, because there's not a convenient hard cutoff. Companies that go this route put boundaries in place like, "Trigger an alert if sales go Y% below the slowest sales month for this product in the last two years" or — if the company is confident about its demand forecasting abilities — “Anything more than Z% below the bottom of our forecasted sales range.” These are the main ways of defining and identifying slow-moving inventory; other ways are discussed below. Source https://lnkd.in/daV8dMXK #Logistics #WarehouseManagement #Palletization #StorageOptimization #InventoryManagement #slowmoving