 |
 |
 |
 |
 |
August 11, 2016 - Supply Chain Flagship Newsletter |
 |
| FEATURED SPONSOR: AMBER ROAD |
|||
 |
|||
 |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
As can be seen, fast food restaurants had the lowest DIO of just 8.0 days on average, translating into 45.8 turns for the year. At the bottom was the biotech sector, with DIO of a whopping 348.1, or basically just one turn per year. I will note that some sectors are far more homogenous than others. Consumer packaged goods, food manufacturers, and department stores, for example, have very comparable companies, as with other categories. But despite our best effort, some categories are much more varied, such as the machinery group. It includes companies ranging from Lincoln Electric (welders) to Briggs & Stratton (small engines) to Timken (bearings). We just couldn't do much more with that. Still, it is interesting to consider much of this data. Why can't consumer packaged good companies, for example, muster up better than 5.5 turns per year, a number that hasn't really changed for years and is actually trending up? Improved turns or DIO, of course, translates directly into less working capital and higher cash flow, a key component of shareholder value. Anyway, take a look. We will do still more analysis of this data in OnTarget next week. Any reaction to this inventory data? Why have inventories been creeping up on the past 5 years? What explains differences in turns between similar companies in a sector? Let us know your thoughts at the Feedback button below.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
YOUR FEEDBACK
This week, just a few quick feedbacks from our first column last week on inventory performance 2016. That includes a question asking for more detail about calculating the inventory-to-sales ratio.
Feedback on Inventory Performance 2016
In your next column, can you clarify the calculation of the “Total Business Inventory/Sales Ratio”. I understand the DIO which is fairly intuitive.
I do wonder why the year-end inventory is used which is more capable of being gamed by someone incented to do so. Seems like an annual average would be more representative, especially for businesses which sell down their inventory over the Christmas peak season.
Eric Dagle
Senior Operations Planner
Dematic North America
Editor’s Note:
The inventory-to-sales compiled by the US Commerce Dept. is define as inventory levels being held by US companies in aggregate divided by one month’s worth of sales.
The Commerce Dept. collects this data from a series of surveys sent each month to manufacturers, retailers, and wholesalers.
So, for example, in May 2016, overall sales for the month across all businesses were $1.291 trillion. Inventories across those same companies were $1.810 trillion. So, $1.810 divided by $1.291 results in an inventory-to-sales ratio of 1.39.
I agree it would be better to use quarterly inventory data and take an average for the year, but the REL data we use as a base takes the year end snapshot, so we have to just run with that. I have looked at this before, and found that while the average inventories across quarters does tend to be a bit higher than the year end number, it is not meaningfully so.
Dan Gilmore
Good once again to see you looking beneath the headlines and trying to gain more meaningful information.
As to reasons for the increase in inventories it might just be due to companies deciding to stock more of what they really need, rather than run the risk of stockouts on popular lines, thus ensuring higher levels of service - using availability as a competitive weapon. Perhaps it is also due to an informal acknowledgment of the need for "slack" that I posed a few weeks ago.
If it is not on the shelf then it matters little how responsive your transport system is you cannot get it into the hands of the customer. It is also a reflection that it can take a huge amount of time to reduce redundant/slow-moving inventories and brand creep is still with us.
I look forward to reading about the answers from your side of the Atlantic.
David MacLeod
Learn Logistics Limited
Outstanding analysis as always from SCDigest. No one else out there, including the analysts, does what you do, and you do it week after week.
Great stuff - keep up the good work,
I agree that the rising US inventory levels have not been well covered or explained.
Thomas Detmann
Spokane, OR
SUPPLY CHAIN TRIVIA ANSWER
Q: What has been the compound annual growth rate in US 3PL expenditures from 1994 through 2015?
A: 9.6%, according to the 3PL industry experts at Armstrong & Associates, meaning US 3PL spending has been about doubling every 7-8 years.
| © SupplyChainDigest™ 2003-2016. All Rights Reserved. SupplyChainDigest PO Box 714 Springboro, Ohio 45066 |
POWERED BY: XDIMENSION
|