Note: Running most Fridays in FromGregsHead.com, this is a continuing series of inventory control tips by Jon Schreibfeder. These run Saturday mornings during the BusinessMaker’s Radio Show on Supertalk 97.5. Audio files can be found on the Entrepreneur’s Playbook page of the PKF Texas website.
Inventory is the largest and probably the most important asset of many distributors. If you don’t have the right amount, of the right products, you cannot provide service to your customers. Therefore, it’s crucial that you develop the right set of tools that help you monitor the performance of your inventory investment. Two of these tools include: Customer Service Level and Gross Margin Return on Investment
Customer Service Level is calculated by:
Number of line items for stocked products shipped complete by promise date
Divided by: Total number of line items for stocked products ordered
The goal is to be at or near 100%.
Gross Margin Return on Investment (GMROI) is calculated by:
Gross Margin$
Divided by: Average Inventory Investment
The goal is to have a GMROI of 160 % or better
Without meaningful analysis ratios like the two above, can you tell if you are making progress with your inventory management?