How do I improve inventory

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Inventory turnover / turnover rate

 

formula

Inventory turnover rate (LU)

1.

2. If you consider the period for one year, you get the formula (see Ø storage period):

 

Explanation / interpretation

The inventory turnover rate (LU) indicates how often the material in the warehouse turns over within a period (usually 1 year); d. H. how often the material in the warehouse has been used up or sold and replaced by new storage. With the inventory turnover rate, the material consumption is related to the inventory.

A reduction the turnover rate would indicate that inventory and thus capital commitment have increased: this is to be assessed negatively. The aim is therefore to achieve the highest possible turnover rate. (The camp should often "renew" itself.)

A increase the turnover rate causes a shortening of the storage period. This leads to a reduction in storage costs as well as the capital employed by tying up capital: this is to be assessed positively. Measures to increase the turnover rate were e.g. B. a reduction of the safety stock, a shortening of the procurement times, an optimization of the range (more attractive offer for customers), etc.

The inventory turnover rate should not only be considered for the entire warehouse, but also for each material group or material item. In particular, the A-goods should be considered more closely.

A Rule of thumbwhich is often suggested is: "Inventories with a turnover rate of LU <0.5 should be removed from inventory". This cleanup leads to e.g. B. Storage space becomes free and capital tied up in the warehouse is also free (liquidity!).

However, there can also be reasons why material with a low inventory turnover rate is kept in the warehouse: B. an important spare part for a production machine that has a long delivery time or is very difficult to obtain again. If this spare part were not always in stock, the whole production could come to a standstill (shortage costs!). Another reason could be that certain materials are used for speculative reasons, e.g. B. be stored in anticipation of a price increase, or for ripening processes (e.g. wine) - a consideration of the turnover rate is often not useful in such cases.

 

Examples

1st example:
A total of 300 pieces of item BF2502 were removed from a company's warehouse for production within one financial year. The average inventory of the item was 25 pieces. What is the turnover rate?


➽ The turnover rate is 12 - d. H. the warehouse turns 12 times a year (or every 30 days or every month) ...

2nd example:
Goods to the value of € 220,000 were withdrawn from a company's warehouse in one financial year. The average warehouse value was € 550,000. What was the turnover rate?


➽ The turnover rate is 0.4 - d. H. the warehouse turns 0.4 times a year (or every 900 days) ...

3rd example:
The average storage time in a company is 45 days. What is the turnover rate?


➽ The turnover rate is 8 - d. H. the warehouse turns 8 times a year (or every 45 days) ...