Inventory performance measures
Describe the three most commonly used inventory performance measures.
The Inventory Turnover Ratio measures how often a company's entire stock of goods is sold during a certain period of time. This ratio can be calculated by dividing total sales units during a given period by average inventories held in that same period. A high turnover ratio indicates that there is enough demand for products to keep them moving quickly through the supply chain and generating revenue for the company. Conversely, low ratios reflect slow sales or poor management decisions regarding ordering or pricing strategies.
Days Sales Outstanding (DSO) is used to measure the average length of time it takes for customers to pay their bills after making purchases from a company. DSO can be calculated by dividing Accounts Receivable (AR) balance by total credit sales in given period then multiplying result number days Given companies have their own payment terms dso offers reliable snapshot businesses’ overall financial health allowing them track customer payments determine if they taking longer than expected pay off invoices adjust accordingly High values this metric indicate customers aren’t paying fast enough whereas lower figures could signify either efficient payment collection processes well-managed accounts receivables department
Finally, Stock Keeping Units (SKUs) refer to unique identifiers associated with each product or item offered within an organization's portfolio of offerings - such as serial numbers or UPC codes - which are used to track items throughout production & distribution process As such SKUs provide quick easy way ascertain quantity available any given store/warehouse location enabling retailers effectively manage suppliers maintain appropriate stock levels reorder necessary prevent overstocking while also assessing what bestsellers selling poorly so money not wasted needless expenses The number SKUs maintained across enterprise important gauge efficiency operations size growth related initiatives since higher numbers often translate into increased overhead costs due need additional personnel oversee manage assigning tasks tracking data etc...
In conclusion these three metrics offer distinct yet complimentary perspectives when attempting evaluate success failure particular inventory strategy providing valuable insights aid decision makers develop well-rounded actionable solutions maximize profits minimize losses long term Looking at combination models allows us draw conclusions wouldn’t normally possible outlier data points cover blind spots where information may unavailable otherwise point direction need further investigation