Comments on: MC44 – Inventory Turnover (1)

By: Kowboy

Kowboy — Fri, 13 Nov 2009 08:11:36 +0000

Yes, absolutely. Although with RM and WIP you wouldn’t use COGS, but Cost of Goods “Processed”. For the obvious reasons that raw materials and components are not sold. In case you are an SAP user: Since I do not work with SAP anymore I am not sure how SAP handles these material types in MC44. MC44 does offer the ability to filter on material types (see my other post on inventory turnover).

By: Eric

Eric — Fri, 13 Nov 2009 04:45:14 +0000

Hi Kowboy,
Here you show turnover for complete inventory, but can we do the same for inventory split by RM, Wip and FG to explain the differente part of the turnover? Thanks in advance

By: Kowboy

Kowboy — Sat, 24 Oct 2009 18:20:43 +0000

Especially with seasonality stick to 12 months rolling. If your seasonal pattern is repeated each 6 months you could use 6 months rolling. By including the full season you cancel distorted results. Whenever your KPI is increasing you know you did better. If you exclude part of the season you’re not sure whether you did really better or that the increased inventory turns is part due to the start of season with higher demand. Also, in this case it could be possible that procurement is lagging demand and although the inventory turn increased your service levels may be under pressure as safety stock is consumed. So, stick to 12 months rolling and do not assume that a higher inventory turn is better per se. Analyze major deviations from the historical average.

By: Tommy J.

Tommy J. — Fri, 23 Oct 2009 13:35:33 +0000

If I am right, most of the times the Inventory Turns is measured over a period of one year (12 months rolling). In the Consumer Electronics industry we see a lot seasonality. Could this be a reason to change to a shorter period like 6, 3 or even 1 month turns? What do you recommend and why? Do you have any literature on this specific subject. Thanks in advance for your help.

By: Kowboy

Kowboy — Sat, 22 Aug 2009 17:41:00 +0000

Jeyana, you are right when you say the example is oversimplified. That is my intention. I want everyone to be able to understand the concept that higher inventory turnover means higher ROI. I don’t want to give an elaborate scientific explanation on how to calculate average inventory in a real life situation. There are other sources for that PLUS in SAP MC44 transaction will do that for you.

By: jeyana

jeyana — Sat, 22 Aug 2009 14:25:49 +0000

Yes, by the way, why do you calculate the average inventory as the arithmetic mean between starting and ending inventory balance? It should be more complicated, if the company purchases the inventory in unequal amounts or in unequal time periods, for example…

By: gova

gova — Mon, 20 Jul 2009 06:42:26 +0000

very good explanation…i need to know..how the avarage stock will be claculated

By: Kowboy

Kowboy — Thu, 02 Jul 2009 16:54:28 +0000

Thank you.

By: Shahid zaman

Shahid zaman — Fri, 26 Jun 2009 07:19:49 +0000

Very good side

By: SAP MM: Inventory Turnover Concept And Use with Real Life Scenarios (MC44)

SAP MM: Inventory Turnover Concept And Use with Real Life Scenarios (MC44) — Fri, 27 Feb 2009 19:03:50 +0000

[...] Inventory Turnover is a prominent KPI in a lot of businesses. Kowboy, who runs SAP Mental Notes site, has posted a topic which you will get understanding the concept of Inventory turnover. Giving the formula, he also presents very clear real life scenarios for insight and . You can read post from HERE [...]