![]() They should be spot-checking bins on a regular basis to keep an accurate and perpetual inventory year-round, not just annually. ![]() Knowing these numbers, what can a dealer or controller do? To begin, make sure that the parts manager has policies and procedures in place that ensure the on-hand counts recorded in you DMS are correct. It is recommended that you have a fill rate of at least 90% in your parts department. For example, if you had a demand for a part 100 times and you can go to the bin and pull that part without having to order is 80 times, you have a fill rate of 80%. A good ratio to have as your true turn is six or more with a daily stock order and four to five with a weekly stock order.įill rate is an important metric because it tells you the sales that come from your inventory vs. ![]() Or you could multiply 80% (stock order performance) by 4.0 (gross) turns to get the same number: 3.2.Īlthough you do not have to calculate this ratio yourself - your DMS should be able to calculate it for you - it is a good idea to understand where the numbers come from and what they mean.Īim for a stock order performance of 75% to 85% for weekly stock order deliveries and 85% to 95% for daily stock order deliveries. Hence, you could calculate true turns either by dividing $400,000 (stock orders) by $125,000 (average inventory value) to get a true turn of 3.2. To calculate your stock order performance, divide your stock order purchases by your total purchases.Ī parts department that has stock order purchases of $400,000 out of a total inventory of $500,000 is said to have a stock order performance of 80%. The preferred formula for calculating the true turn is to multiply the stock order performance (percentage) by the gross turnover. True inventory turns, consequently, are a good measure of how profitable the dealership’s inventory investment really is. Therefore, parts sold from stock generate higher gross profit margins, which translates to higher net profits. Gross turns include emergency purchases, which may fill an immediate need, but in the long run increase the acquisition costs of parts, reduce your earned discount amount and does not add to your return reserve you are earn from the manufacturer. It is the best indicator on how the managed inventory is meeting the needs of the customers, whether they be counter retail, wholesale or service customers, since it uses only parts sold from stock to calculate the true turn of the inventory. True turnover or “true turn” represents a clearer picture of the return on investment of the parts inventory. We suggest using another measurement, “true turns,” as well. Using this “gross turns” method represents all parts inventory, including special orders and emergency purchases, so it doesn’t give a true picture of the parts departments’ efficiency - the return on the investment of the parts department isn’t truly calculated using this method. If, for example, the cost of goods sold is $750,000, and the average inventory value over 12 months is $125,000, the gross turnover ratio would be 6.0, or six times per year. To calculate gross turnover, divide the cost of goods sold by average inventory value. Gross turnover is represented by the ratio of the cost of goods sold, to the average inventory value, over a certain period of time. ![]()
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