In working with a client the other day, we were analyzing several inventory Key Performance Indicators (KPI’s). Their goal was to turn the inventory at least 4 times annually, up from the 3.15 turns they are doing today. We then talked about how long they carried inventory before they deemed it to be “aged”, or beginning to get old. Their response to this question was 20 weeks.
This is a classic example of where most small to mid-size companies are from an inventory management perspective and using KPI’s. In the above case, by choosing to focus in on inventory as it hits 20 weeks on the average and older, you are really aiming to only do 2.6 turns annually. Take 52 weeks in a year and divide it by the age in weeks that you deem “aged”, in this case 20 weeks and you get 2.6 turns annually.
In order for this client to be hitting 4 turns annually, they need to be concerned with inventory as it hits 11-13 weeks in age, and develop a strategy to move the inventory to achieve their goals. It is important for companies to develop the long term strategies followed up by the actions or tactics to achieve those goals. It is also important to understand the goals, agree to how they will be measured and report on them regularly.
Brian Barry is a Senior Consultant with F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory, and benchmarking; learn more online at: http://www.fcbco.com.
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