inventory turns

Inventory ABC Classification: a way to categorize/group your products. There are a few different ways to set up an ABC Ranking, such as Velocity (times sold), Quantity sold/Consumed or by Margin. But the most common method I have seen is the Annual Sales Volume ranking. This method will allow you to identify the small amount of products that usually account for most of your sales dollars (think 80/20 rule)

Here's one quick method for determining your ABC ranking based on Annual Sales Volume:

1. Calculate the 12 month dollar usage for all of your products (volume X cost).
2. Rank the items in descending order by the dollar usage.
3. The "A" items are the top 80% of the total annual usage dollars.
4. The "B" items make up the next 15% of total annual usage.
5 The "C" items are the remaining items are the remaining 5% with >0 usage in the past 12 months
6. Label zero-usage items can be labeled as "D".

You will also need to make a special consideration for your newer products. If you don't have a full year of Sales Volume to reference, you need to use a yearly forecast estimate instead.

There are also other considerations, such as "critical items" that may have low usage, but need special monitoring because you can't run out of stock due to a customer agreement. So your definition of A items may need to be customized.

Some companies use A, B, C, C-
A = 80%, B = 15%, C = 4%, C- = 1%

If you have any specific questions about ABC Inventory Control or any Supply Chain metric, email us your question. We'll forward your note to an expert in the field!
Contact: john@supplychainmetric.com

Our goal is to guide companies that are looking to optimize their Supply Chain. If you have specific questions about Inventory Control, Sourcing, Manufacturing, Distribution or Supply Chain Metrics, Email us your question. We'll forward your note to an expert in the field.
Contact: john@supplychainmetric.com

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For information on Inventory Turns, Fill Rate Measurement, Backorder Reporting or any other Supply Chain Metric, click on the links to the left. The text that appears on this website is the opinion of the webmaster. Metrics may or may not be uniform across all industries. All data listed here may be used as a general guide, but it's accuracy is not guaranteed. Please consult a qualified Supply Chain professional for more details on Supply Chain Measurements. Other Supply Chain Websites
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VendorManagedInventory.com - information on Vendor Managed Inventory
InventoryTurns.com - additional information on how to calculate inventory turns or inventory turnover.
SupplyChainManagementNews.com - News stories about Supply Chain Management
SupplyChainDefinitions.com - various definitions of supply chain terms
SupplyChian.com - various supply chain info (yes, i know it's mis-spelled)

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