Inventory KPIs in retail part 1

23rd November 2018

 

Stock or inventory turn is the most usual measure of the efficiency of inventory control. It is the number of times within a period, usually one year, which the average inventory is sold. Inventory turn represents the rate at which merchandise moves. Stock turn varies by product. Produce in US supermarkets turns around 58 times a year. Health and beauty items turn 5 times

Inventory turn        =                    Sales

                                     Average Inventory at Retail

It can also be calculated as:

Cost of Goods Sold

Average Inventory at Cost

At its simplest, improving stock turn involves increasing sales, reducing inventory, or a combination of both. However, few things are as simple as first seen. A retailer can boost sales, but will need to reduce, or control the amount of inventory needed to drive the sales. If the sales increase is matched by a like growth in inventory, the desired result will not be achieved. 

 

Availability or In Stock % is calculated as:

                                  Number of SKUs in Stock  x 100

                             Number of SKUs Assorted for the Store

Availability has to be calculated by store and then a chain average computed. It can also be calculated for each warehouse or DC, which may be particularly important in respect of continuity products or items sold all year round.

Availability is usually calculated weekly and it is essential to measure it at the same time each week. Measuring at Tuesday lunchtime might show the best position the business achieves all week. Measuring at close of business on Friday will tell you how your customers are likely to see the store on Saturday, most retailers’ busiest day.

Availability for a grocery chain should be in the high nineties. For a fashion clothing business, 70% at SKU level, would generally be regarded as good.

As a fairly good guide, every 1% increase in availability typically generates a 0.5% increase in like for like or same store sales. Hence improvements in availability can have a significant impact on sales and profitability.

Next time we will look at fresh stock percent, weeks of supply and shrinkage.

If you’d like to know more about these KPIs and how to calculate and interpret them check out our Retail KPIs e-learning course. This also includes average stock turns for different retail sectors and countries.

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