SCDigest recently conducted its annual analysis of inventory performance for 2016 across industry sectors, including many retail and consumer goods categories.
There are two key inventory measures: Days Inventory Outstanding (DIO), and the more familiar – to supply chain managers – the inventory “turns” metric.
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The August inventory-to-sales ratio for example, was 1.32 for manufactures and 1.20 for wholesalers, versus the higher 1.41 level for retail.
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DIO is often used in the financial department because it can tie into measurement of changes in working capital and hence cash flow, when combined with Days Sales Outstanding and Days Payables Outstanding.
DIO is calculated as follows:
DIO = End of Year Inventory Level/[Total Cost of Goods Sold/365]
So, you calculate the average cost of goods sold for one day, and then see how many of those COGS days you keep in inventory (based on year-end balance sheet numbers).
As such, DIO is sort of the reverse of inventory turns, in that a higher DIO, all things being equal, means poorer inventory management performance, while a lower number signals improvement. You are being more efficient with inventory versus a given level of COGS.
Conversely, inventory turns is measured as follows:
Cost of Goods Solid/End of Year Inventory
Overall, US retailer inventories have been trending up in recent years. The US Commerce Dept. tracks the inventory-to-sales (ITS) ratio, which measures how much inventory companies hold versus one month of sales revenue. That ratio was 1.41 in August, versus 1.29 in August of 2011, an increase of 9.3% over those six years, though flat with 2016 numbers (retail inventory levels are of course also highly seasonal).
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What's more, retailers also have a higher ITS than do manufacturers or wholesalers. The August ITS, for example, was 1.32 for manufactures and 1.20 for wholesalers, versus the 1.41 level for retail cited above.
With all that said, here are some inventory turn numbers for leading retail sectors (the numbers in parentheses denote how many retailers are in each category), in descending order of inventory turns in 2016:
On-Line Retail (4): 59.2
Convenience Stores: (3): 45.8
Grocery (8): 13.8
Drug Stores (3): 9.6
Office Products (2): 7.4
Electronics (2): 5.6
Mass Merchants and Dept. Stores (12): 5.3
Specialty Apparel (15): 4.9
Dollar Stores (3): 4.8
Home Improvement (3): 4.5
Dept. Stores Only (7): 3.6
Retail Footwear (4): 3.6
Sporting Goods (3): 2.9
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Autoparts (4): 1.9
By way of comparison, apparel manufacturing had average turns of 3.5 in 2016, consumer packaged goods 6.2, food manufacturers 7.4, and consumer durables manufacturers 6.1.
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