AMITY GLOBAL BUSINESS

SCHOOL

MBA “2”
SUBMITTED BY:-
PAYAL PARIKH
TOPIC
INVENTORY TURNOVER
RATIO
PILLARS OF RETAIL
ECONOMIC ORDER
QUANTITY
INVENTORY TURNOVER

 Inventory turnover refers to the amount of time that passes from the day an item is
purchased by a company until it is sold. One complete turnover of inventory
means the company sold the stock that it purchased, less any items lost to damage
or shrinkage.
 Successful companies usually have several inventory turnovers per year, but it
varies by industry and product category. For example, consumer packaged goods
(CPG) usually have high turnover, while very high-end luxury goods, such as
luxury handbags, typically see few units sold per year and long production times.
 A number of inventory management challenges can affect turnover; they include
changing customer demand, poor supply chain planning and overstocking.
 WHAT IS INVENTORY
TURNOVER
The inventory turnover RATIO
 ratio is the number of times a company has sold and
replenished its inventory over a specific amount of time. The formula can also be
used to calculate the number of days it will take to sell the inventory on hand.
 The turnover ratio is derived from a mathematical calculation, where the cost of
goods sold is divided by the average inventory for the same period. A higher ratio
is more desirable than a low one as a high ratio tends to point to strong sales.
 Knowing your turnover ratio depends on effective inventory control, also known
as stock control, where the company has good insight into what it has on hand.
HOW INVENTORY TURNOVER
RATIO
 WORKS
Average inventory is typically used to even out spikes and dips from outlier
changes represented in one segment of time, such as a day or month. Average
inventory thus renders a more stable and reliable measure.
 For example, in the case of seasonal sales, inventories of certain items—like patio
furniture or artificial trees—are pushed abnormally high just ahead of the season
and are seriously depleted at the end of it. However, turnover ratio may also be
calculated using ending inventory numbers for the same period that the cost of
goods sold (COGS) number is taken.
 Lastly, the formula can also be used to calculate how much time it will take to sell
all the inventory currently on hand. Days sales of inventory (DSI) it is calculated
like this for a daily context:
(Average inventory/ Cost of goods sold) x 365
INVENTORY TURNOVER
OPTIMIZATION TECHNIQUES
 Streamline the supply chain- Suppliers with the lowest prices may or may not be
the best choice. If a product is central to your sales or is seeing a surge in market
demand, faster or guaranteed delivery times for those items or vital components
may be more important. In any case, streamlining the supply chain to eradicate
inefficiencies will benefit your sales, profits and overall margins.
 Adjust your pricing strategy- Adjust pricing to realize larger margins on items
in high demand and to free capital by moving old inventory, also known as dead
or obsolete inventory, out. If items just won’t sell, consider donating that stock to
charity and taking a tax deduction or offloading it through a secondary channel.
INVENTORY TURNOVER
OPTIMIZATION TECHNIQUES
 Check or change your ranking in your industry- Are your inventory turnovers in line
with the rest of your industry? Are there opportunities for you to manoeuvre a better
strategic position on competitive items when you note emerging trends in your inventory
ratios? You can grab more market share and increase your ranking within your industry by
managing your inventory more strategically.
 Improve forecasting- Sales numbers and inventory reports supply much needed hard data
that make inventory forecasting more accurate. This data can also help with future sales
planning, such as suggesting ways to change your product mix or bundle items in creative
ways to move slower inventory at potentially a higher margin.
 Automate purchase orders- Automation adds efficiencies and may cut costs on its own.
But when you couple it with an order management system that facilitates reordering of
inventory that sells well so that it is always in stock, you net even more wins. Consider using
an inventory system that will automatically generate purchase orders for your buyers to
review; the result will be better control and fewer errors.
PILLARS OF RETAIL

There are 3 pillars of in retail.

a) Replenishment
b) Allocation
c) Transportation
REPLENISHMENT

 Replenishment refers to a situation where the amount of stock left in the store is
counted so that the right products are available at an optimal quantity. It is
considered an essential aspect of inventory management, as it ensures that the
right products are being reordered to meet the demand from customers.
 In operational terms, the efficiency of store replenishment has a significant impact
on profitability. The effectiveness and accuracy of store ordering affects sales
through shelf availability and storage, handling, and wastage costs in stores and
other parts of the supply chain. By optimizing the demand forecasting, inventory
management, and setting of order cycles and order quantities by making them
more systematic, the gains obtained are significant, often amounting to savings of
several percent of total turnover.
ALLOCATION
 In allocation, the new stock of products is distributed to individual store units,
such that they maximize the sale of the product and prevent any stock out
situation in the future. This process enables the assigning of supplies so that they
support the organization’s strategic goals. Having sufficient stock levels is an
essential component for any retail business; with the changing consumer habits, it
becomes crucial for the stock to be available in the right place at the right time.
 To meet the new and increasing demands, the retailers need an efficient process
where data is gathered, interpreted, and analyzed from customer behaviors and
habits, which would help get a more localized and specific idea of what is sold at
a larger quantity in different locations. Items that are high sellers in one particular
area may not sell well in others, so recognizing and monitoring this can ensure
that the stock is allocated to the most needed location. Due to this, an opportunity
is provided for the retailers to encourage sales by pushing stock of a similar type
that a customer may favor at a particular location.
TRANSPORTATION
 It is crucial for transportation to play a significant role in business to deliver the right stock
of products at the right point of delivery. It connects the business to its supply chain partners
and influences the customers’ satisfaction with the organization. With the ever-changing
customer preferences and as their expectations continue to evolve, the transportation
industry is undergoing a dramatic transformation to meet these demands.
 Today, data plays a vital role in shaping how the industry will progress amidst tough
competition. Due to the maturation of automation technologies, AIl will help the
transportation industry to better manage drivers and fleet managers . By employing the
techniques of AI, fleet and truck adjustments will offer data in real-time, eventually
improving the industry’s standard. The safety and retention of the drivers will also increase
from these newly acquired standards, and with enhanced access to data, there will be
transparent communication between drivers and carriers.
 The average time between goods purchasing and delivery decreases by using real-time
findings, making retailers focus on transportation to improve their business performance.
The ability to automate insights, alerts, and data exchange more quickly will be the game-
changer for this industry.
 ECONOMIC ORDER QUANTITY
(EOQ)
 Economic order quantity (EOQ) is the ideal order quantity a company should
purchase to minimize inventory costs such as holding costs, shortage costs, and
order costs. This production-scheduling model was developed in 1913 by Ford W.
Harris and has been refined over time. The formula assumes that demand,
ordering, and holding costs all remain constant.
FORMULA FOR EOQ

 The formula for EOQ is:​

Q=√2DS
H
where:
Q=EOQ units
D=Demand in units (typically on an annual basis)
S=Order cost (per purchase order)
H=Holding costs (per unit, per year)​
LIMITATIONS OF EOQ

 The EOQ formula assumes that consumer demand is constant. The calculation
also assumes that both ordering and holding costs remain constant. This fact
makes it difficult or impossible for the formula to account for business events
such as changing consumer demand, seasonal changes in inventory costs, lost
sales revenue due to inventory shortages, or purchase discounts a company might
realize for buying inventory in larger quantities.
EXAMPLE OF HOW TO USE EOQ

 EOQ takes into account the timing of reordering, the cost incurred to place an
order, and the cost to store merchandise. If a company is constantly placing small
orders to maintain a specific inventory level, the ordering costs are higher, and
there is a need for additional storage space.
 Assume, for example, a retail clothing shop carries a line of men’s jeans, and the
shop sells 1,000 pairs of jeans each year. It costs the company $5 per year to hold
a pair of jeans in inventory, and the fixed cost to place an order is $2.
 The EOQ formula is the square root of (2 x 1,000 pairs x $2 order cost) / ($5
holding cost) or 28.3 with rounding. The ideal order size to minimize costs and
meet customer demand is slightly more than 28 pairs of jeans. A more complex
portion of the EOQ formula provides the reorder point.
THANKYOU