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Supply Chain Metric .com  

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Financial Inventory Metrics

GMROI (Gross Margin Return on Inventory)

GMROI = (Unit Selling Price of an Item - Unit Inventory Value of an Item) X Annual Demand for the item
 Average Inventory Value of the product.

Notes:
Unit Inventory Value tells you what it costs you to make the product.
The Unit Selling Price - Unit Inventory Value tells you the margin.

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Inventory Carrying Rate:

 This can best be explained by the example below....

1. Add up your annual Inventory Costs:
Example:
$800k =  Storage
$400k = Handling
$600k = Obsolescence
$800k = Damage
$600k = Administrative
$200k = Loss (pilferage etc)
$3,400k Total

2. Divide the Inventory Costs by the Average Inventory Value:
Example:
                $3,400k /  $34,000k = 10%

3. Add up your:
 9% = Opportunity Cost of Capital (the return you could reasonably expect if you used the money elsewhere)
 4% = Insurance
 6% = Taxes
19%

4.  Add your percentages:   10% + 19% = 29%
 Your Inventory Carrying Rate = 29%

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Inventory Carrying Costs:

 Inventory Carrying Cost = Inventory Carrying Rate (see above) X Average Inventory Value

Example:  $9,860,000 =  29%  X  $34,000,000

Special Thanks to Dr. Edward Frazelle. Logistics Resources International Inc.

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
This site is owned and maintained by Michelle Taras & John Taras CPIM, PMP

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)
SupplyChainPurchasing - a new site Michelle is developing. All about Supply Chain Purchasing.

other...
DangerousTricks.com - my 14 year old son is working on his first website. The site has video's of people doing extreme stunts.