PSC-495 Business Problem and Proposed Solution

Course Name: PSC-495

Business Problem and Proposed Solution Metric                       

The business is facing issues of proper inventory management. The target orders are not being finished on time. Either the raw material gets short or produced material remains in stock for a long time to be delivered. The proposed solutions for this problem were- Strong Communication, Proactive approach (backup), and vendor management. The success of the solution can be measured using the “Inventory turn” which is one of the best inventory metrics. Inventory Turn make comparison of sales cost and average value of inventory. The total period for this calculation is usually set to one year. Other time periods can be used depending upon duration of average inventory value. For example, if the inventory value is averaged in one quarter then inventory turns is also calculated for one quarter.

Following is the formula that can be used to calculate inventory Turns-

To know how effectively the inventory is working against cost of sales, Inventory Turns comes out as simplest method. Gross profit percent or Gross margin metrics are closely related to inventory turns. These can be calculated as-

Inventory Turns is a good measurement to know if the available solutions are working good or not. It takes care of both the processes, managing optimum level and delivery of products on time. Decision regarding which products needed to be stayed in inventory and which need to go out are supported by inventory turns. Because of its simplicity, there is no much time consumed in the calculation. The results from the calculation can be used modifying the proposed solutions.

References

Hausman, W. H. (2004). Supply chain performance metrics. In The practice of supply chain management: Where theory and application converge (pp. 61-73). Springer US.