Basics of Inventory Management for SMEs Part II

1. INVENTORY
MANAGEMENT
AL-TIJAARAT AL-RAABEHAH
PAKISTAN
PART III

2. 2
WHAT IS INVENTORY & ITS
MANAGEMENT?
1. Inventory or stock is the goods and materials that a
business holds for the ultimate goal of resale to
make money.
2. Inventory management or control is a discipline
primarily about specifying the shape and placement
of stocked goods.

3. 3
THREE MAIN ASPECTS
OPTIMUM LEVEL
CONTROL
PERFORMANCE
VALUATION

4. 4
MARATHON Q’s
HOW I MEASURE
PERFORMACE?
THIRD…
DEAD STOCKS

5. 5
PERFORMANCE METRICS
The goal is to keep costs low while getting the
right inventory to the right people at the right
time to ensure high customer satisfaction.
The solution is tracking the right inventory
metrics.

6. 6
COMMON METRICS
 GMROI
 SHRINKAGE / WASTAGE
 SELL THROUGH RATE
 INVENTORY TURNOVER RATE / DAYS
 PRODUCT PERFORMANCE

7. 7
GMROI
It tells you the amount of money you received for every unit you
spent on inventory.
GROSS MARGIN RETURN ON INVESTMENT
INVENTORY SOLD 50,000
LESS: WA COGS (30,000)
GROSS PROFIT 20,000
GMROI = GROSS PROFIT / WAC 0.67
For every unit invested in inventory, you received 0.67 units extra.

8. 8
SHRINKAGE / WASTAGE
It is the difference between stock you have on system / paper and the
actual stock available. It’s a reduction in inventory without sales.
Wastage % depends on the type of the inventory you are in
business with.
ENDING INVENTORY VALUE 50,000
PHYSICAL COUNT 45,000
WASTAGE = ENDING – PHYSCAL 5,000
% = WASTAGE / ENDING x 100 10%

9. 9
SELL THROUGH RATE
It is the percentage of units sold versus the number of units that were
available to be sold.
In this metric usually ending inventory is usually returned.
OPENING INVENTORY 200
ADD: PURCHASES 2,300
UNITS AVAILABLE 2,500
LESS: UNITS SOLD 1,700
ENDING INVENTORY 800
SELL THROUGH RATE = UNITS SOLD / UNITS AVAILABLE X 100 68%

10. 10
INVENTORY TURNOVER
It is the number of times stock is sold in a given time period. The
higher the turnover, the better it is for your business.
Having a high turnover value means you are being efficient. It means
you carry very little inventory to support a certain level of sales.
12M Average Inventory 25,000
12M Cost of Goods Sold 100,000
Turnover = COGS / Avg. Inv. 4.0
Turnover in Days = 360 / Turnover 90 Days

11. 11
PRODUCT PERFORMANCE
1. Your top and lowest performing products should always be
the top of your mind.
2. What are FMG and SMG?
3. What products should stock up on?
4. Which items need a promotional push?
5. Which are highly and slightly profitable?
6. Which have high turnover?
7. Apply 80 / 20 rule. The Pareto Principle.

12. 12
FINAL WORD…
WELCOME THE FUTURE OF
TECHNOLOGY

13. 13
ANY QUESTIONS
Q / A
?

14. 14
THANK
YOU