Invenotry Turns A White Paper By Pan-Pro

EXECUTIVE SUMMARY

Inventory turns is a critical business metric that attracts a lot of attention. Turns provide a convenient shorthand for high level inventory assessment, and tracking turns consistently over time can illustrate deviation from goals.

But does a turns goal motivate desirable behavior and results, or is something missing? This paper explores the relationship of turns to end customer fill and package size selection, and highlights how turn goals effect end customer service and vice versa.

CHALLENGES

Turns are regarded as a known business metric, however various methods of calculation provide a more or less accurate understanding, and higher or lower degrees of ability to ‘game’ the results.

In a non-optimized replenishment situation, it can be difficult to find a direct link between decisions to change turns (by increasing or decreasing inventory) and end customer service. The link often appears to not exist (that is, the link is not reliably measurable), particularly as measurements are clouded by the degree of costly expediting activity added or removed from the supply chain.

Yet the link exists. It’s intuitive that higher service levels may require more inventory (lower turns) and lower inventory (higher turns) may yield lower end customer service levels.

We can also intuitively understand that for a given level of demand (sales) larger and larger package sizes result in lower and lower turns*1 and at some point provide no change in end customer service levels. The reverse is also true, as smaller and smaller package sizes not only modify other costs but can eventually reach a point of negatively impacting end customer service.

HOW PAN-PRO HELPED

Pan-Pro Executive Dashboards present turns and service level metrics together and include both point in time achievement, community benchmarking, and trend information.

Because Pan-Pro Supply Channel Optimization includes sophisticated forecasting, probability analysis, and economic modeling (including analysis of the cost / service impact of available package sizes) the link between inventory level and end customer service is clear. Pan-Pro’s unique marginal analysis and simultaneous equations automatically set each item at each location with optimized turns / service level targets that meet overall inventory goals at the lowest total cost over time. With Pan-Pro, changes to target inventory levels have a clear link and predictable impact on end customer service levels. And with Pan-Pro’s deep automation of the process, modeling the impact of proposed inventory level changes on end customer service is not only possible, but is reliable enough to be of practical use.

RESULTS

  • SCO supply chains are automatically tuned to achieve the distributors end customer service level target at the lowest possible cost and highest possible turns over time
  • Changes to the target can be made in minutes and automatically impact replenishment of all impacted items on the next generated order
  • Returns exposure is automatically minimized by the fact that all flow items at a location are set to the same risk (inventory investment) / reward (end customer fill) level
  • The optimal package size for an item / location is automatically set and modified based on end customer demand patterns and total cost economic analysis
  • Dashboards present turns, end customer service levels and community benchmarking to enable sound business decisions
  • Automation frees time to allow a focus on growing end customer sales using SAVVY Marketing and Sales features.

FUTURE

By considering both turns and end customer service, SCO distributors can meet both important goals. And when business conditions necessitate change, distributors can understand the probable impact of their decisions before committing. When the decision to change goals is made, the best possible path to achieving the new goals is immediately generated and automatically applied to future replenishment.

And with the complexity and labor associated with manual replenishment removed, SCO distributors and manufacturers will have the time to grow sales, utilizing SAVVY tools to identify targeted product recommendations and SAVVY’s sales achievement tracking dashboards.

COMPANY

Pan-Pro (www.pan-pro.com) is a trusted partner in providing innovative integrated business solutions targeted to grow your business and reduce costs.


*1 Other costs and economic relationships are also changed, but have been omitted from this paper for brevity / clarity. These costs / relationships are included in the automated evaluation process.