Product Turnover Analysis Report overview
Function acronym: ICRIT
Use this report to determine the inventory turnover rate of shelf stock.
Because of the high cost of inventory, distributors strive keep their inventory as low as possible. If inventory is too low, sales might be lost because customers' orders cannot be filled as expected. Use this report to identify the fast- and slow-moving products in your inventory to help improve the efficiency of your inventory.
Inventory turnover is a measure of an inventory system's effectiveness. It expresses how many times per year the shelf inventory is used or sold. Transactions that did not use shelf stock to meet customers' requirements are excluded from inventory turnover calculations.
This report determines the number of inventory turns for products. Five to six turns per year is good in most durable goods industries if gross margins average 20-30 percent.
Average Inventory Value = Quantity On Hand / Cost
Both values in the formula are from Product Warehouse Product Setup. The cost in Product Warehouse Product Setup is based on the Post to GL By option in SA Administrator Options-Products-Costs. The cost includes addons if the Include Addon option is selected for the Post to GL By option.
Average Inventory Value = Sum of monthly Average Inventory Values for # of months specified on the report / # of months displayed in Product Inquiry-Replenishment
Total Product Cost = Normal usage * Unit cost
The unit cost is from Product Warehouse Product Setup-Costs, based on the cost type in SA Administrator Options-Products-Costs at the time the report is generated. Ensure that you review the average inventory value and the cost. This report can provide an unreasonable turn level if either of these values are incorrect.
# Turns = (Total Product Cost / Average Inventory Value from the Product Turnover Analysis Report )*(12 months / # months specified on the report)
The calculation includes overridden usage and normal usage that is determined by recurring sales and qualified warehouse transfers.
If products are new and have a short history, the report uses the history that is available and annualizes the result. The annual result may not be valid.
For example, the number of months in the Number of Months of History option is 6 months and the inventory turned 2 times in 6 months. Using those values, the annualized turnover is 4 times in 12 months.
Building a history of turnover data is important. One turnover report cannot provide a valid evaluation of inventory performance. Monthly reports show fluctuations, which is normal.
Review multiple reports to recognize the trends. The trend should be upward if you follow solid replenishment rules and reduce your dead stock simultaneously. Extremely low or high turns may be a result of faulty data. The key parts of the formula are presented on the report. Consider the turns for a product over several months and review purchasing and usage to establish the validity of the data.
Seasonal Products
Seasonal products are calculated on an annualized basis. No special calculations are used for seasonal products. Low sales and increasing inventory buildup in the months before or after the season are taken into consideration. Seasonal products are indicated with an "s" on the turnover report. Run the Product Seasonal Product Analysis Report, which shows seasonal trends, to analyze your seasonal products in more detail.
Order as needed products
Order-as-needed products are calculated and included on the Product Turnover Analysis Report. Because the average inventory value may be zero, the number of turns could be inflated if zero is used in the calculation.
For example, stock that is reserved for a specific order is stored in the warehouse until delivery. This stock is not available for sale and is not included in the average inventory value. If the average inventory value for a particular month is zero, the COGS value is zero. If the average inventory value is greater than zero, that value, and the actual COGS value is used in the calculation.