The collection is intended for specialists of trading companies who want to effectively manage the directions of the company. That is, to create profitable product categories that allow the company to develop, and not exist!

Once again I was asked about return on inventory(RTZ). Many department heads, directors and just buyers and product managers do not have a clear understanding of this issue. So I decided to focus this article purely on return on inventory(RTZ). Concentrate your attention to read this article, since the RTZ indicator is a key one not only for the purchasing department, but for the entire company.

This article will be structured around the following points:

1. determination of the profitability of inventory,
2. types of profitability of inventory,
3. calculation formulas for the profitability of inventory,
4. possible rates of return on inventory.

Determining the profitability of inventory

Profitability(aka profitability) inventory- this is the ratio of the gross or net profit of the company for a certain period of time to the average value of the cost of inventory for the same period. In other words, we take from the sales report the amount of the company's profit for the month, for example, and divide it by the average monthly cost of inventory. Thus, we get a percentage that shows how effectively the funds invested in inventory are used.

For a trading company, in my opinion, return on inventory is the most important indicator that reflects the effectiveness of its activities. Why? Look, about 80% of the capital in trading companies can be in inventory. Therefore, the efficiency of using the funds for which we purchased them depends on how well the stocks are created.

Return on inventory shows the owners of the company, its investors, how effectively the money they invested in the company is used. Or in another way, how much money the company has earned, for example, from 1,000,000 USD. investment in inventory.

Types of profitability of inventory

Return on inventory can be of two types:

1) gross ,

2) purereturn on inventory.

What's the Difference? The only difference is how much profit you divide by the cost of inventory. Dividing gross profit by the cost of inventory gives the gross margin on inventory, and dividing net profit by the cost of inventory gives the net margin on inventory. What type of RTZ is used more often in practice? Of course, the gross RTZ indicator is more often used. And this is not surprising, since in order to calculate the net RTZ, it is necessary to have access to the indicators of the company's net profit. As you understand, access to such information is available exclusively to the financial department and the company's management. The sales and purchasing departments, on the other hand, may have a company's gross profit figures, which is why they use the gross margin on inventory.

Calculation formulas for the profitability of inventory

It is worth saying that there are two main formulas for calculating RTZ. The first formula is used if it is necessary to calculate the RTZ indicator for the whole year, the second formula - if the calculation of the RTZ is based on monthly data.

It is also important to understand that the profitability of inventory can be calculated both for a separate commodity item and for a certain product category, brand. More often, RTZ is calculated for a category of goods.

The formula for calculating the profitability of inventory (period - 1 year) (F.1)

As we said, the numerator of the above formula can be either the company's gross profit or net profit.

How to calculate the average monthly cost of inventory for 1 year? There are 3 calculation options here:

1) We take the figures for the cost of inventory at the beginning of the year and at the end of the year - and derive the average value between them. But this is a very "rough" method, since it does not take into account the statistics of the cost of inventory throughout the year. I do not recommend calculating the average cost of inventory in this way, since the RTZ indicator can be very distorted.

2) We collect information on the cost of inventory at the beginning of each month throughout the year. And we determine the average value between the available data. This method of determining the average monthly cost of inventory is optimal, since the dynamics of the cost of inventory throughout the year is taken into account. I recommend using this technique in your practice.

3) We calculate the average cost of inventory throughout the year, taking into account each working day of the company. For example, a company worked 240 working days in the analyzed year. We sum up the cost of inventory at the beginning of each business day and divide the resulting amount by 240 days. This method is the most accurate, but often more labor intensive.

The formula for calculating the profitability of inventory (period - 1 month) (F.2)

In this formula, the average monthly cost of inventory is calculated as the average between the indicators at the beginning and at the end of the month, or as the average between the cost of inventory at the beginning of each working day of the month.

Why do we multiply the result by 12 months? Thus, we bring the indicator of profitability of commodity stocks to annual terms. For what? It's also pretty simple. It is easier for investors to compare the return on cash in annual terms (whether it is investing in a business, acquiring real estate or depositing in a bank). For example, an investor knows that he can put 100,000 c.u. on a bank deposit, and at the end of the year he will receive 20% per annum, that is, 20,000 USD. Or he will buy a property and will rent it out at 10% per annum, which will give him 10,000 USD. earnings at the end of the year.

When we bring the profitability of inventories to annual terms, we mean that we will achieve such an indicator if we have the same cost of inventory throughout the year and the sales rate is similar to the current month.

It should be noted that more often in the work we use the formula for calculating the RTZ based on monthly data, since the company monthly analyzes the achievement of the planned RTZ indicators throughout the year.

It is also worth paying attention to the fact that the profitability of inventory during the year with a monthly analysis cannot be constant and be at the same level. The behavior of RTZ indicators will fluctuate taking into account the seasonality of the company's sales (see Figure 4 below). Our task is to study this behavior and plan a possible profitability of inventories seasonally adjusted.

Example of calculating the profitability of inventory

As an example, to calculate the profitability of inventory, let's use the statistics shown in Figure 1.

Picture 1.

In Figure 1, you see a table in which there are lines "Gross profit, c.u.", "Cost of inventory, c.u." and "Return on inventory, %". In the first two lines, we have statistics that were taken from the company's accounting program. In the line "Return on inventory,%" we need to calculate the indicators of gross margin on inventory. For each month, we will calculate the RTZ in annual terms, and for the entire year (cell O7) we will calculate the RTZ, using the final data of the table.

So, let's initially calculate the RTZ for the 1st month of 2012 (see Figure 2).

Figure 2.

As you can see, in cell C7 we entered the formula "=C5/AVERAGE(C6:D6)*12". The value of cell C5 is the sum of the gross profit for January 2012 in c.u. Part of our formula "AVERAGE(C6:D6)" is the calculation of the average monthly cost of inventory for January 2012 in c.u. It is worth clarifying that in the table the cost of inventory is displayed at the beginning of each month. And at the end of the formula there is a multiplication by the number 12 - this is the reduction of the result to an annual expression. This gives us a gross return on inventory for January 2012 of 51.6%. This indicator tells us that by the end of the year the company will reach a return on inventory of 51.6% if the level of sales and the average cost of the warehouse throughout the year will be the same as in January of the analyzed period. We copy the resulting formula for each month of 2012 and have this kind of table (see Figure 3).

Figure 3

If you build a graph based on the data of the line "Return on inventory,%", then you will see the following picture (see Figure 4).

Figure 4

This graph shows that during the year the gross margin of inventory of the analyzed group of goods ranges from 50% to 110%. And this is primarily due to the behavior of the company's sales throughout the year, that is, with the seasonal factor.

Now let's calculate the annual profitability of commodity stocks in cell O7 (see Figure 5).

Figure 5

As you can see, in cell O7 we have entered the formula "=O5/O6", where the value in cell O5 is the sum of gross profit for the entire year 2012, and the value in cell O6 is the average monthly cost of inventory calculated based on the cost of inventory at the beginning each month of 2012 (in cell O6 the following formula is entered: "=AVERAGE(C6:N6)"). In the end, we got the result of the gross RTZ at the level of 85.0%.

Possible rates of return on inventory

At the end of this article, I would like to orient you on the standards that I met in my practice at various trading companies (non-food product groups). It is worth saying that I saw patterns between the solvency of companies in Ukraine (and other CIS countries) and their clean return on inventory.

For example, companies that have a net return on inventory below 50% per year often experience difficulties in paying their obligations to suppliers, employees, etc. And this is not surprising, since the company does not have enough money, not only for further development, but even to pay off current debts. Companies with a net return on inventory above 50% feel financially sound. I, in turn, am an adherent of ensuring that the net profitability of commodity stocks tends to 100% per year and above.

Recently, one of the readers of my site asked the following question: I evaluate the effectiveness of inventory in terms of turnover and ROI, while we take into account all the goods in the warehouse, but some of the goods are paid for, and the supplier ships some of the goods to us with a deferred payment, that is, we did not invest money in this product. If you also had such a question, this article will help you find the answer.

Indeed, a company can purchase goods on different terms - prepayment, deferred payment, upon payment. And for the purchased goods, we set a different trade margin, taking into account prevailing market prices. In addition, different suppliers have different delivery times, minimum shipment lots, which affects the turnover of goods. All of these factors need to be taken into account in order to assess how beneficial we are with certain products. In this case, I suggest you use the inventory return on investment formula, taking into account how much capital we need to make a profit on each product.

First we need to define frozen capital - it is the capital we need to sell the commodity. To evaluate the frozen capital, it is necessary to calculate the operating cycle and the financial cycle.

Operating cycle = Delivery time + Turnover in days + Number of days of delay for customers

Financial cycle = Delivery time-Payment terms + Turnover in days + Number of days of delay for customers

Frozen capital = (Revenue for the period by s / s * Financial cycle) / 365 days

You can read more about the calculation of the financial cycle

The formula for calculating the return on investment in stocks in this case looks like this:

ROI= (Gross profit (Margin) / Frozen capital) * 100%

An example of calculating the operating and financial cycle

Delivery time= 15 days

Terms of payment - prepayment the day before shipment

Inventory turnover in days = 32 days

Number of deferral days for customers = 30 days

Operating cycle = 15 days + 32 days + 30 days = 77 days

Financial cycle = 1 day + 15 days + 32 days + 30 days = 78 days.

With the same delivery times and turnover, but under different payment terms, for example, a deferred payment of 20 days after shipment.

Financial Cycle= 15 days-20 days+32 days+30 days=57 days.

Example of Frozen Capital Calculation and Return on Inventory Investment

Revenue for the period at cost - 289,500 rubles.

Gross profit (margin) - 98430 rubles.

Financial cycle = 1 day + 15 days+32 days+30 days=78 days.

Frozen capital \u003d (289500 rubles * 78 days) / 365 days \u003d 61865.75 rubles

ROI \u003d (98430 rubles / 61865.75 rubles) * 100% \u003d 159%

If we change the terms of payment and the financial cycle will be equal to 57 days, in this case, the amount of frozen capital will change and the amountROI.

Frozen capital \u003d (289500 rubles * 57 days) / 365 days \u003d 45209.6 rubles

ROI \u003d (98430 rubles / 45209.6 rubles) * 100% \u003d 218%

In order to see how the financial cycle affects the return on investment in inventories, consider the calculation of this indicator for several products in the table:

The table presents data with parameters for calculation for four products.

Note that Product 1 has the lowest ROI at 16%, while inventory ROI is the highest, why? For that product, we pay the supplier with a 60-day grace period, and this is what allows us to get the highest percentage of return on investment. Product 4 has the highest profitability -40%, but due to the fact that this product is in stock for a long time - 180 days, the financial cycle is the most significant. As a result, the return on investment in inventory is much lower than that of other commodities.

Sometimes it happens that the financial cycle is zero (for example, the value of the deferred payment to the supplier is significant), in which case this formula cannot be applied - the frozen capital is zero, and you cannot divide by zero. In this case, the calculation of ROI does not make sense. because in fact ROI is the percentage of profit from invested funds, and in this case we have no investments at all and the profit is received without investments. Almost perfect case!

This formula is not only an opportunity to evaluate the return on investment in inventory, but to a greater extent it is a tool to increase this indicator. By analyzing the value of one or another parameter, we can influence it and immediately determine how it affects one of the main indicators of the company's activity - return on investment.

Note. I have prepared an example of calculating the return on investment in EXCEL. Leave an email address in the form and get a template with calculations.

Erukaev V. A., RI Log LLC http://rilog.rf/

Traditionally, logistics costs include the costs of transporting goods from the supplier to the central distribution warehouse of the network and the costs of customs clearance.

That is, the cost price (cost price, according to the terminology of some networks) of the goods in this case consists of the purchase price, the cost of transportation to the central warehouse, charged per unit of goods and from the cost of customs payments and customs clearance per unit of goods.

After the sale of a product, a trade margin appears in our information system as the difference between the proceeds from the sale of the product and its cost.

Now let's imagine that the Light forces help the promotion of product A, and the Dark forces move product B. Of course, the task of the Light Forces is to help us in every possible way, and the Dark Forces, respectively, to interfere.

Which version of the supply chain is much closer to reality? Now you know what forces are "overhead you"?

Now we look what costs during the implementation of this scheme appeared, but were not included in the cost(fell "into the common cauldron"):

1. The cost of shipping goods to consumers or to their stores.
2. Inventory holding costs
3. The cost of scarcity.

Let's consider each item in more detail.

1. The cost of placing an order.

A specific manager with a specific salary takes care of placing orders with suppliers, he has a workplace, the cost of which is depreciated, he communicates with suppliers by phone and via the Internet, and sometimes goes on vacation or is sick.

1. Warehousing costs.

Often, even such serious costs fall into the "common pot" and are not posted to the cost of goods. In the example with product A, the costs of loading / unloading, placing on storage sites and picking orders will be minimal. In the case of product B, the costs of paying fines, vehicle downtime, manual unloading, transport battle, damage, markdown, shortages from theft are added. Is it advisable in this case to distribute all these costs and expenses evenly among all goods?
3. The cost of delivering goods to consumers or to their stores.

Let's assume that product A is packed in a small strong box and weighs 500 grams, while product B is not packaged at all, takes up 2 cubic meters of space in the car and weighs 500 kg. Is it possible to consider the costs of delivery of these goods the same and not take them into account of the cost of the goods?
4. Inventory maintenance costs

1. First, let's calculate our reserves:

1. Now let's decide on the cost of storing our stocks. Small-sized, palletized goods reduce the corresponding expense item. For oversized goods, the cost of storage in a warehouse will add 3-4% per month to the cost price.
2. Since money "frozen" in reserves is not manna from heaven and not someone's gift, they also cost money. You could use the money invested in inventory to purchase other goods or to invest in business development. And if your income is 40 kopecks. for the invested ruble, then every day when you do not use your withdrawn money, you potentially lose 40/365=0.11%.

The cost of scarcity. They take place in the example with product B. For 30 days of the absence of goods on sale, we lost (200-160) * 1000 = 40,000 rubles, which were also not taken into account in the cost of that ill-fated delayed batch. And this, by the way, is our entire margin on Goods B of the delayed batch.

What do we end up with? Two products that we think sell for the same 20% margin. And a bunch of related costs that are deducted from the entire markup collected (from marginal profit). It's good when these costs remain less than the collected margin and we have enough difference to pay for marketing and management costs. What if the resulting difference is not enough? Then in a few months - the finish line for the business.

Of course, managing costs, especially logistics costs, requires a lot of effort from the owner or manager of the business (do not expect to "fuse" this on subordinates - it will not work!). However, these efforts are justified a hundredfold. Well, not a hundredfold - a tenth. You know that a 5% reduction in a company's costs increases a company's net profit by 40-60%. And this, after all, is exactly what you expect from a business? Just that little thing that distinguishes the 1% of trading companies that survived from the 99% that closed within 10 years? Is not it?

How can we reduce logistics costs?

To effectively reduce logistics costs, you must first learn how to correctly calculate them (remember - you can only manage what you can measure?).

To do this, all commodity flows should be divided into elementary components, analyze the existing costs both in each of these components and in general, and then outline ways to reduce logistics costs.
Let's learn how to do it. Now it will be a little boring, but then with the help of these boring concepts we will learn how to do miracles in cost management.

1. The first and main object of logistics analysis is the Functional cycle or order execution cycle. This is the time from the moment an order for a product is placed with the supplier until the moment the product is sold and delivered to the consumer. The global cycle in practice is divided into 2 parts:

1. The functional cycle of goods delivery (from the moment an order is placed with the supplier until the moment this product appears in the warehouse and in accounting systems, that is, until the moment when the goods can be distributed to stores or included in the order for shipment to the buyer).
2. The functional cycle of distribution (from the moment the goods available for distribution appear in the warehouse until the moment they are transferred to the final consumer).

For a deep analysis of costs and expenses, it is advisable to divide these 2 large functional cycles into even smaller links. The general rule for determining the stages of the functional cycle is the maximum possible binding of monetary and time costs to these stages.

The main measured parameters of the functional cycle are:
duration. Usually measure the average duration of each stage of the functional cycle.

Continuity is the ability to provide an average duration over many functional cycles. It is measured by a statistical value - the standard deviation from the average duration of the functional cycle.

Costs- these are all direct and indirect costs, overheads and losses associated with the implementation of logistics operations within each stage of the functional cycle. FC. FC costs, in turn, are divided into:
costs created by specific operations (transportation, cargo handling, etc.);
costs arising over time (in connection with the storage of stocks in the system, maintaining production capacities, etc.);
deficit costs, which characterize lost profits in the absence of goods demanded by consumers for sale.

2. The second most important concept of logistics is the basic level of customer service or service level.

The service level of a trading company is characterized by the following parameters:
1) Availability is the availability of goods where they are needed by consumers. To assess the level of product availability, we measure:

• Shortage Probability
• Demand saturation rate
• Completeness of coverage with orders

2) Functionality - the ability to adhere to the expected timing and acceptable variability of operations.

Additional parameters for this indicator:

• Speed.
• Continuity.
• Flexibility
• Defect/remediation rate

3) Reliability - the ability to maintain the planned level of availability and functionality of operations for a long time, as expected by the consumer.

So, we figured out the two most important concepts of logistics, which directly affect the level of company costs. In the next part, we will begin to apply this knowledge in practice.

Let's move on to practice.

We set a basic level of customer service for our business.

Everything and everyone is now trading, suppliers are now almost the same for everyone, trading technologies are copied from each other with an accuracy of up to a comma, prices in all stores are also almost equal. The buyer becomes more and more fastidious and demanding of the seller. What the most advanced retail chains did for the Buyer yesterday is already a consumption standard today. And now the correct answer to the question of how to make money in trading is determination of the basic level of customer service.

Its first component is availability of your product.

The main meaning of this indicator: with what probability the Buyer who applied to you will receive what he expected to receive from you. It was EXPECTED to receive, but did not find what he needed.

So you must, firstly, know your current level of service, secondly, know what level of service your competitors and the best trading businesses in the industry have, and thirdly, ASK yourself the level of service that you will strive for.

The easiest and most practical way to measure the level of service in retail is to keep statistics on your most popular products (20% of products that give 80% of the collected margin, or gross margin, or marginal profit - whoever calls it), which fixes the days when a particular product was not on sale. We divide the number of such days by the total number of days in the period under consideration (of course, the days when your trade worked), multiply by 100 and get the local level of service for a particular product. Then we find the arithmetic mean of all local service levels of hot goods and get the overall level of store service. The arithmetic mean of the store service levels will give the global network service level.

Any accounting of goods on sale from SAP R / 3 to the sales book in the kiosk allows you to establish such measurements.
Many business owners are shocked by the findings. Especially after they learn that European and American retailers have long been fighting for service levels of 95-98% and that leading Russian chains operate at 85-90% service levels.

For wholesalers, the saturation level of demand can be calculated by the ratio of incompletely satisfied applications to the total number of applications, or by calculating the percentage of completion of each application and then calculating the average over the period for all applications.

It is not very important HOW to measure the level of service. It is important to DO this constantly and regularly in order to understand at what level we are, what dynamics we have and what to strive for.

How often should product availability be measured? For each type of trade and even for each type of goods - in different ways. For example, for ready-made meals and non-frozen semi-finished products, the shelf life of which is a day, you need to measure the level of service hourly or several times per trading day. For products with a longer shelf life - daily or once a week. For household appliances - once a month.
Well, OK. We measured the level of service, outlined a benchmark to strive for, and now we need to move towards this benchmark. But for this you need to understand what the level of service depends on, what levers you need to put pressure on in order to control its value.

How will we improve the availability of our products?

It would seem that everything is simple: you need to know how many goods we will sell for a certain period and by the beginning of this period to deliver exactly this amount of goods. For example, if we sell 100 packs of sugar a week, then by the beginning of the week, these 100 packs should be in our back room.

By the way, let's immediately define the terminology: in this case, the delivery period (functional delivery cycle) is 7 days, the order size is 100 packs every 7 days, the sales rate is 100 packs per week or 14.3 packs per day. Our average stock is 50 packs (100 packs at the start of the week plus 0 packs at the end of the week divided by 2). With the cost of a pack of sugar 50 rubles, the cost of our stocks is 50 * 50 = 2500 rubles. Or, in other words, we have 2,500 rubles frozen in our reserves.
Some store directors or sales managers may find it boring to order 100 packs of sugar every time, and they will start experimenting with order sizes. But, if we order 300 packs once every 3 weeks and we have an average stock of 150 packs. In stocks, we will freeze 150 * 47 = 7050 rubles. And another director or manager will require the supplier to bring 50 packs of sugar 2 times a week, despite the fact that the price of a pack will be 53 rubles. We will have an average stock of 25 packs, in stocks we will freeze 25 * 53 = 1325 rubles.

We introduce another term - inventory turnover. In all three cases discussed above, we sell 100 * 52 = 5200 packs of sugar per year.
In the first case, the cost price of these 5200 packs (or the cost of these 5200 packs) was 5200*50=26000 rubles. We had an average stock of 50 packs worth 2,500 rubles. Inventory turnover for this case: 26000/2500=104 times a year.
In the second case (300 packs 1 time in 3 weeks), the cost of 5200 packs is 5200 * 47-244400 rubles, the average stock is 7050 rubles, the inventory turnover is 244400/7050 = 35 times a year.
In the third case (50 packs 2 times a week), the cost of 5200 packs is 5200 * 53 = 275600 rubles, the average stock is 1325 rubles, inventory turnover is 275600/1325 = 208 times a year.
That is, our hard-earned money, invested in stocks to maintain a constant level of demand, turned over the year 104, 35 and 208 times a year, respectively.

Suppose that in all these three cases we sell sugar at the same price of 60 rubles per pack. Then in the first case our margin was 10 rubles, in the second - 13 rubles and in the third - 7 rubles. For the year, our gross profit amounted to 52,000 rubles, 67,600 rubles and 36,400 rubles, respectively. Consequently, each ruble invested in stocks brought us 52000/2500=20.8 rubles in the first case, 67600/7050=9.6 rubles in the second case, and 36400/1325=27.5 rubles in the third case.
Which option do you prefer as an owner? And for which option will the sales manager or store director receive the maximum bonuses?

In the considered case, an increase or decrease in the frequency of deliveries changed the cost of goods by 5%. If the cost price changed by 10%, delivery 2 times a week would become less profitable than delivery 1 time per week, although delivery 1 time per 3 weeks would still be less profitable.

The optimal ratio of inventory turnover and markup is determined by the inventory profitability ratio, which is the most general indicator (KPI) for the business owner, characterizing the efficiency of logistics.

Return on Inventory = Gross Margin/Average Inventory

We analyzed an example in which the demand of Buyers is constant and the order execution time is always the same. Everything in life is not so perfect. Demand changes daily, the week is not like a week, and during the winter months the demand is not the same as the summer. In reality, any trading company operates in conditions of considerable uncertainty. Therefore, everyone has situations when the goods are either not on sale, or the warehouse is clogged with this product.

Maintaining a high level of service in the face of uncertainty in demand, delivery times and supply from suppliers is ensured by the creation of insurance stocks of goods in the system. However, it is impossible to increase the level of insurance stocks indefinitely.
Therefore, the level of insurance stocks should be optimal, and not as much as there is enough money and storage space.

What should be the safety stocks?

On the one hand, they must be weighty enough to eliminate the shortage of goods in trade when there is a combination of unexpectedly high demand and an expectedly large delay in the next batch of goods in transit from the supplier. On the other hand, they are small enough to exclude significant losses of frozen capital from inflation, damage and theft of stored goods, and from rather high storage costs in Russia.

Many retailers use inventory coverage ratios or something similar to control inventory levels, which show how many times the stock of a product is greater than the estimated value of monthly sales. In this case, the value of coverage ratios for each group of goods is set subjectively. The result of such inventory management is always the same - the warehouses are full, and there is nothing to trade.

In fact, it is possible and necessary to manage the amount of insurance reserves with the help of mathematical calculations. Any deviation from the expected result that happened several times is already a statistic described by mathematical laws from the probability theory hated by all of us in universities. And the more cases of deviation we measured (the larger the sample), the more accurate the statistical patterns.
We always have the most powerful samples of sales statistics in our hands. Based on the results of the analysis, we obtain the values ​​of the average sales and the standard deviation from the average sales. We need average sales to analyze trends and approximate these trends for future periods (sales forecast), and we need standard deviations to calculate safety stocks.

From the theory of probability, we know that with a normal distribution, 65-70% of random events lie within the interval of plus or minus one standard deviation (hereinafter referred to as standard deviation), and 92-96% of all events will fall into two standard deviations. Three standard deviations can describe 99.5-99.7% of random events. For us, this means that a safety stock in the amount of one standard deviation will provide us with the availability of goods on sale with a probability of 65-70%, in the amount of 2 standard deviations - with a probability of 92-96%, and 3 standard deviations - with a probability of 99, 5-99.7%. In other words, if you have set a service level of at least 92% for your company, then you must set the safety stocks that compensate for uneven demand at the level of MEASURED 2 standard deviations from average sales for the period of delivery of goods from suppliers (in the supply chain) or from warehouse to store (in distribution channel). For example, if we have a delivery period of 20 days, the average estimated sales rate is 10 units per day, and the measured RMS for this period is 5 units, then the safety stock to maintain a 92% service level will be 10 units with an average inventory of 100 units.

In the same way, we form insurance stocks that fend off the uncertainty of delivery dates (uncertainty of the functional cycle). We must measure the timing of every delivery or every distribution. It is desirable for each stage of functional cycles. From the accumulated statistics, we obtain average values ​​(we use them to calculate the average base stocks in the system) and standard deviations. Depending on the established basic level of availability of goods, we take one or two RMS of delivery/distribution dates and multiply by the average daily sales rate. The resulting value will give us the required size of the safety stock to parry the unevenness of the functional cycle. If in the above example, the standard deviation of the delivery time is 3 days, then for a service level of 92% we need 3 * 10 = 30 units of goods. In total, 10 + 30 = 40 units of goods will be needed to parry the uneven demand and the functional cycle.

Similarly, the level of insurance stocks is calculated to parry the uneven supply of the supplier. Here we, in fact, statistically measure the level of saturation of the supplier's demand and take into account the probability of the absence of the goods we need through RMS to calculate safety stocks. Mathematically, we can manage stocks of an unlimited range. The manager, on the other hand, is able to qualitatively analyze and manage no more than three hundred articles on a weekly basis.

It is advisable to conduct a weekly calculation of insurance stocks and regulate their value by the volume of deliveries. For example, before the New Year's sales, the level of insurance stocks will be maximum, and in January the decrease in insurance stocks is often so significant that the removal of goods from insurance stocks to the base ones replaces one or more deliveries. And vice versa, on the eve of the high sales season, the amount of delivery should take into account not only average sales, but also the replenishment of safety stocks to the level calculated for the high season.

How do you manage inventory costs?

From the foregoing, it follows that the value of reserves is affected by 3 main factors:

1. The magnitude and unevenness of demand. Managed marketing activities.
2. Uneven supply. Managed by contractual relationships with suppliers and differentiation of supplies.
3. Speed ​​and unevenness of the functional cycle.

In fact, it is these factors that have the greatest influence on the value of reserves. Speed ​​- by the value of average basic reserves, unevenness of functional cycles - by 80-90% of the value of insurance reserves. Therefore, we will consider the management of these factors in more detail.
And we'll do that in the next part.

Continued: Part 2

According to the reference book on material and technical supply, commodity stocks are products that are in the process of circulation (in the warehouses of manufacturing enterprises, trade and marketing organizations, in a retail trade network and on the way) and intended for sale. The essence of commodity stocks is well shown by K. Marx in "Capital". According to Marx, "By means of the act of T-M, both the advanced capital value and the surplus value are realized ... The circuit causes the fixation of capital ... Only after performing the function corresponding to the form in which it is at a given time, it acquires a form in which into a new phase of transformation ... The delay of goods is a necessary condition for their sale. Thus, from this definition it follows that the main role of commodity stocks is to ensure the continuity of the reproduction process, as well as the realization of surplus value.

The need to have a stock of products may be dictated by the presence of at least one of the following factors:

Fluctuating demand for a product

fluctuations in the timing of delivery of goods from the enterprise

certain conditions requiring purchase in batches

the costs associated with shortages.

All of the above factors take place in the functioning of a trading organization. Thus, we can say that the issue of inventory management is more than relevant for us.

Trying to understand the need for stocks and show their role in the work of a commercial enterprise, even with a superficial study, we come to the only conclusion: stocks provide profit. We are forced to build up stocks, because otherwise the costs will increase or profits will decrease. Stocks and financial results can be considered as interchangeable factors. It follows that inventories are created when they provide a high rate of return compared to when the capital is used in an alternative way.

Let's analyze the inventory statistics for our company. Let's consider the previously selected group of goods. Let's use statistics.

Statistics of sales volumes, purchase volumes and average stock balance for the period are presented in Table 12.

Table 12

On fig. 12 shows graphs of the dynamics of changes in the proposed indicators.

Conclusion: We see that during the period under review there is an increase in sales volumes. It is also obvious that there is a seasonality in demand. These points must be taken into account when forming requisitions for the purchase of materials.

The growth in sales volumes is accompanied by an increase in purchases, while it should be noted that the average stock balance has a constant trend: it does not grow and does not decrease. But is this average residual optimal? This is the question we are asking ourselves. Let's try to solve it using the inventory management model.

3.9.1 Inventory turnover ratio

When analyzing the effectiveness of the use of inventory items, the inventory turnover ratio is often used. Every time we sell a product equal to the initial investment, we turn over our inventory. Turnover ratio measures the number of times the turnover of inventory items for the period and, together with the profitability ratio, serves as an indicator of the effectiveness of investments in general for goods. The inventory turnover ratio is defined as the ratio of sales volume for a period to the average balance during that period.

2003 - sales volume - 1784 tons (see table 7)

average balance - 143.3 tons (see table. 12)

12 times a year.

2004 - sales volume - 2626.65 tons (see table. 7)

average balance - 65.3 tons (see table. 12)

inventory turnover ratio - 40 times a year.

2005 - sales volume - 3128.99 tons (see table. 7)

average balance - 128 tons (see table. 12)

inventory turnover ratio - 24 times a year.

The instability of the indicator is explained by the fact that the purchase of material is carried out in an "arbitrary" way. Without applying any inventory management model. At the same time, one cannot ignore the economic situation in the country as a whole and in the metal market in particular. Thus, the high inventory turnover rate in 2001 is partly due to the fact that the market for pipe manufacturers remained fairly stable, and there was no need to invest in insurance stocks.

3.9.2 Inventory rate of return

There is another way to evaluate investments in certain types of inventory items - inventory ratio. Together with the turnover ratio, it serves as an estimate of the effectiveness of the company's stocks. The profitability ratio is defined as the ratio of Gross profit from the product to the cost of purchasing and storage. The values ​​for the calculations are presented in Table. thirteen

The value of the profitability ratio of the stock reflects how effectively the inventory is managed at the enterprise. Such different values ​​of the indicators allow us to say that Vega-Flex LLC has certain problems associated with planning the volume of purchases. It is possible that the application of inventory management models in practice will make it possible to normalize the dynamics of the indicator and bring it closer to the maximum value.

3.9.3 Return on sales ratio (product groups)

The profitability ratio of sales shows how much profit the company receives from one ruble of revenue.

When calculating the indicator, we use the data presented in Table. thirteen.

This indicator was respectively:

2003 - profitability ratio - 6,94%

2004 - profitability ratio - 13,19%

2005 - profitability ratio - 6,44%

The considered indicators are used in determining the volume of investments and planning the assortment. It should be noted that the profitability ratio of sales for all groups of materials in the company "Santekhkomplekt Neva" is 3-5%.

Sufficiently high (relative to intracompany) profitability ratio of sales, indicates that the group "Black Pipes GOST 3262-75" requires constant monitoring in the field of costs. Rational use of funds will help achieve high profitability results.

Olga Pravuk, www.uppravuk.net

Can you say stocks are good or bad? When a company has large stocks - is this a positive phenomenon or not? It is very difficult to answer this question unambiguously - this is precisely the duality of reserves. On the one hand, when there are a lot of stocks, we can satisfy all the requests of our customers, sell more and get more profit, but on the other hand, the cost of maintaining stocks increases, cash is frozen, which means that the company loses profit. But if stocks decrease, then the company has shortages - as a result, we lose sales and profits.

Is it possible to find a golden mean? To do this, it is important to remember that the purpose of stocking in a company is to ensure that customers are always supplied at the lowest cost. To control how this task is performed, there are indicators: the level of service, inventory turnover.

We can say that these are indicators of how effectively it is possible to maintain a balance. An important clarification: they must be used together. If we only aim to meet the demand of our customers, we can greatly increase inventory, and on the other hand, the highest turnover is when we work with deficits, which leads to a loss of profit.

There is another indicator that just reflects what stocks we made a profit from. This indicator is called "gross return on investment", which characterizes the effectiveness of investments in reserves. In his book Effective Inventory Management, John Schreibfeber calls this index GMROI - Gross Margin Return On Investment, still there is a name ROI.

It is calculated as the ratio of gross profit for the past year to the average inventory value for the same period:

GMROI = gross margin for the year / average inventory value for the year *100

Let's look at the calculation procedure using a simple example:

Suppose we sold a product, received a profit from the sale of 20,000 rubles, while the average cost of the balances for this product was 100,000 rubles. The gross return on investment for this period for this product was 20%, which means that we received 20 kopecks of profit for every ruble invested.

Please note: this indicator increases if sales increase, while if stocks increase, its value decreases.

Let's see how to use this indicator to evaluate which product is more profitable for the company.

An example of calculating ROI for products

Table 1 presents data on the balance of goods as of the beginning of each month during the year.

Table 1

Gross profit for the year for Goods 1 amounted to 27,837.50 rubles, for Goods 2 - 23,346.00 rubles.

Note that both products generated almost the same amount of gross profit. Let's now look at what reserves the company made this profit. Calculate the average annual cost of inventory for each product:

Table 3

As you can see, the return on investment in Goods 2 is almost 2 times higher than in Goods 1. This is due to the fact that the average annual balances of Goods 1 were almost 2 times more than Goods 2. Thus, it is obvious that it is more profitable for the company Item 2.

Inventory ROI can be used both to evaluate the effectiveness of inventory management and to evaluate product categories. This indicator can become one of the main KPIs for the work of category managers and procurement specialists.

The company works with suppliers on different terms - on prepayment, upon delivery or with a delay to suppliers. This means that the company may have a product in stock that has not been paid for. The companies also work with clients on different terms. And if we work with a client with a deferred payment, then we do not receive money when the goods are shipped. Is it possible to calculate the gross return on investment in reserves, taking into account all these conditions? Yes, there is. This calculation is discussed in detail in another article.