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ID806 - Inventory Turns Report

Currently eAutomate does not have a report or eView to show inventory turns.

Inventory turnover is a financial ratio that you should be paying close attention to because it indicates the cash efficiency a company enjoys.  Any inventory on your shelf or in your technician's cars is typically the largest place where your cash is tied up.  The higher your turn rate, the the lower your risk of inventory loss and/or obsolescence.

The speed with which a company can sell inventory is a critical measure of business performance. It is also one component of the calculation for return on assets (ROA); the other component is profitability. The return a company makes on its assets is a function of how fast it sells inventory at a profit. As such, high turnover means nothing unless the company is making a profit on each sale. This article has a good explanation.

Your turn rate is the number of times per year you sell (turn) your stock. Dealers typically will track 3 primary turn rates, Equipment, Parts & Supplies. Historically the benchmarks were:

Equipment - 4 to 5

Supplies - 7 to 8
Parts - 2.5+

Although we are seeing new numbers of:

Equipment - 6 to 7
Supplies - 9 to 10
Parts - 4+

Our report uses eAutomate's IC Ledger file system which only includes inventory transaction amounts that affected your inventory value (receipts, issuances, cost adjustments, physical qty adjustments, etc). We chose not to use the GL COGS account for the reasons below:
a) Some dealerships post their mfg rebates/credits directly to their GL COGS for the appropriate rebate (parts, equipment, etc) so that their GP is accurately impacted (while others post those rebates/credits to a revenue account, and still others post those $$ into a standalone GL account.
b) The technical challenge of trying to accurately associate a one-to-one Inventory Asset GL to a particular COGS account become apparent when we ran some tests and found many instances on items where both a sales and service code was applied, that the Sales Code GL accounts (REV / COGS) did not align with the Service Code GL accounts. This resulted in the COGS going into different GL Accounts on a sales order than they might for a the same item used on a service call. And in some cases, from a P&L perspective that might be by design.

An example of how the Ratio is calculated is best told in a story problem :

Mike has a dealership and his cost of goods sold for the last 12 months running was $1,000,000. Mike’s inventory value at the start of that 12 month period was $3,000,000 and the ending value was $4,000,000. Mike’s turnover ratio is:

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Since we uses a 12 month basis, the .29 indicates that Mike only sold approximately 1/3 of his inventory during the year, which implies that mike would need almost 3 years to sell his entire inventory (or complete one turn).

 

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