Just to share on of the main questions from my LinkedIn post : Yes, one the reasons Apple has only 9 days of stock is because they ship most of their products from Foxcom in China to their consumers and stores by Plane without any storage in between. (Their revenue per number of SKUs is also incredibly high). Reducing the lead time is key to improving the cash flow even at a high price like paying air freight. The aim of this video was to focus on the calculation of inventory turnover. This Kpi gives the end result of how efficient your cash is invested with inventory. I will definitely go more into details for my next videos, just want to keep it short and simple 😁 Let me know which company you want me to reveal their supply chain secrets in the comment 👇
Thank you for our great videos. All of them are so informative, educative, easy to understand. I am waiting for more supply chain analysis (IKea vs Home Depot, Walmart vs Target...)
@@abcsc in many literatures Inventory/stock turn and Inventory turnover are used interchangeably meanwhile inventory days refer to the average amount of time in which a company’s inventory is held on hand until it is sold. And I am not meet the case that inventory cycle is used as inventory turnover. In your video you used inventory cycle and stock turn in days/in weeks instead- it's a little confusing as you have mentioned. Especially the formula at 3.30 may be wrongly understood by students
@@GoldenMouse-1001@GoldenMouse-1001, indeed, there are many ways to say the same thing. Sometimes, it emphasizes different aspects of the measurement. In the end, the main difference is whether you calculate the ratio or the count of days. I like "Stock Turn" because it's short and concise. In my courses, I always tell my students I prefer using days because ratio is not intuitive. So I don't need to specify "stock turn IN DAYS" each time. I just don't like jargon and endless theory , keep it simple 😉
You have super good videos, please share more with us. It would be nice to see something about, DDMRP and how do design supply chain based on business environment you operate (manufacturing, FMCG, automotive, health industry etc..)
Thanks for your feedback @Lazar 😁 I will do my best to share more strategy and tools to improve you supply chain with real examples. I will keep you posted in this channel 🚀
You have used the term Sales Forecast. That assumes a perfect match of Orders received with Sales which is not necessarily true for all products. A better method would be to track orders received and corresponding enquiries to capture intrinsic market demand, and analyze on the basis of average error and mean error of forecasts vs actual orders received, the corresponding suitability of the algorithm used in forecasting.
Hi, from what I understood, you have a concern that "orders received" don't directly equate with "sales" due to the possibility that not all orders lead to completed sales transactions. However, the practice of sales forecasting itself doesn't inherently assume a 1:1 match between orders received and final sales. Instead, sales forecasting attempts to estimate future sales based on a variety of data, including past sales, market trends, and possibly orders received, among other factors. It's an estimation process that acknowledges uncertainties and attempts to predict future outcomes as accurately as possible. And yes, best way to forecast is always to capture unconstrained demand first
Lets start with Sales. Converting orders to sales is the order processing process not all of which is based on manufacturing against orders received only. Usually a combination of a production plan based on forecasted orders and actual orders. Forecasted orders in a multiproduct, multi model product mix is not necessarily aligned throughout the Organization, where authority levels are not necessarily in sync with reality. Considering the context of the Organization and the needs and expectations of interested parties, including the impact of failure modes in forecasting as well as variations in customer demand, my opinion is that the starting point is to compare annual orders received, with corresponding sales of each and every item in the product mix, and based on categorization of the product mix in terms of runners, repeaters, and strangers , apply techniques of Short term demand forecasting considering a combination of algorithms such as exponential smoothing, exponential smoothing corrected for trend and seasonality, and based on forecasting effectiveness, continue the exercise every month with corresponding dispatch planning and desired inventory levels. I had carried out the above for a product mix combination of over 100 items in an assignment years ago, and hence the learning.
As you wish. It depends on the context and your audience. Days of Coverage might be more understood by people not familiar with inventory management jargon. It intuitively suggests how many days the current inventory will last under normal operation conditions. Stock Turn in Days refers to how many days, on average, it takes to sell the entire inventory. In the end, it is the same.
Hello Edouard, Thank you so much for these videos. I had a doubt regarding calculating average inventory value. I have the exact quantity of materials procured in a particular month. Can I use this value in place of average inventory value?
Hi, yes you can use Qty as I say in the video. But I recommend to work in Value whenever possible, so if you have the purchase price of those items then use it and COGS to calculate Inventory turnover
Hi Edouard! Thanks for your simple tutorial. Can you please help me to calculate the average stock? I have weekly stock amount. The average stock is calculated by (Stock End - Stock Begin)/2 in period or Average of weekly stock. Thank you! :)
Great videos, I like your idea of popularizing SC concepts like you do. Yet if I may, I think you might have inverted 2 concepts : What you are calling stock turnover (rotation du stock in French) is I think called the Stock cover (taux de couverture en français) and it can be calculated by dividing the level of stock by the total annual / sales and multiplying by 365 On the other hand, what you are calling the inventory turn is called by others inventory turnover, it can be calculated by dividing the total number of units sold by the average number of units in stock. I have checked this on different sources and the definitions I wrote are an extract from Gwynn Richard's book : Warehouse Management_A Complete Guide to Improving Efficiency and Minimizing Costs in the Modern Warehouse, excellent logistics bible by the way Am I wrong ?
This video is very helpful! I work with both purchased and donated inventory. With donated inventory, we have storage and shipping cost. Would it make more sense for donated inventory to use units rather than COGS and Sales?
Hi! Can I do this by having only the information below? 1. Current inventory for January 2023 2. Quantity sold monthly from Jan-Dec 2022 How do I get my average inventory? Thank you!
Hi! Regarding the inventory turnover, you obviously don't use sales price for MRO inventory. So you can either use the cost price, or value the cost of having a stockout. In sales field, the cost of having a stockout is just the sales price value (and customer dissatisfaction). In MRO, you would need a deeper analysis to assess the cascading effect of missing a critical part. But keep it easy, use the item cost price :)
Hi Eduard, thanks alot , super clear ! Any difference for a derived demand ?(meaning in manufacturing the Sales is for ther End product, but the stock is for the components)
Can't understand what prices should I use. For inventory value - is it how much it cost to me make that product? or how much should sale it for distributors?
Very interesting Edouard! But i still don't get a thing, why you are not using the COGS/Average Inventory Value formula for the Inventory Turnover Ratio?
How do i calculate the average inventory value? Why do i use value not quantity It will go to the point directly, for example i have 5 pcs and 200 pcs sold last year so turnover is 9 Regardless of cost variations. Kindly clarify as I'm trying my best to learn.
Hello ! They are many reports a Supply planner can make according to his needs and missions. I always recommend to start with the foundations. In the supply side, it is important to start tracking the most important KPIs, that will drive the most important decisions. Those KPIs are related to 3 Pillars : Service, Cost, Inventory. The KPI introduced in this video is related to the Inventory, in this article I talk about others related to the Service : abcsupplychain.com/otif-fill-rate-difot/
What is your thoughts on utilizing a weighted average to measure the true health of inventory? In my experience, having too much of the wrong inventory, and not enough of the right inventory can be hidden in the overall coverage metric.
Good point. I don’t have access to COGS . Is there a reason we cannot measure turns or days of supply using inventory units vs demand? Seems like most videos refer to COGS
Hi! Revenue is your sales: Sales qty * Sales price. COGS is the cost of the products you sold. You can also estimate your sales in cogs value : Sales qty * COGS
Nice video. The only suggestion I have is to stop using the term COGS for the stock value. Cost of Goods Sold is self-explanatory. It is related to sales, and has nothing to do with stock. It is inherently wrong to say Stock COGS. Products that are in stock have not been sold yet, hence they do not have cost of good sold. You can have stock value either at purchase price or sales price. If we are talking about retail businesses, most of the companies track their stock at retail price. Wholesale, on the other hand, based on purchase price. If someone from finance or someone with accounting background was watching your video, they would be very confused with the terminology.
Hi! I am glad you liked the video. You are right. I put "COGS" to get a short terminology and to show it could include labor and overhead costs associated with production, but COGS is indeed a financial measure for items already sold, as the name suggests. So I should have put "Purchase price" or "Acquisition & production costs" for inventory (but still COGS when talking about sales). And yes, some retail businesses use sale price for inventory valuation; in this case, we must also use sales price and not COGS in the Stock Turn calculation to be coherent, as I say in the video. I will edit the Excel file, thanks :)
It is nice presentation, but is it the same concept when I have an inventory for internal end user, I mean I want to optimize the inventory value based on the consumption of items by our own end users?