In MC44 – Inventory Turnover (1) I explained the concept of Inventory Turnover and how it can be used. In this post I will explain the transaction itself. The transaction is mostly self-explanatory, but there is one option of particular importance.
Inventory Turnover is a prominent KPI in a lot of businesses. This post will give you some understanding on the concept. In another post I will give details on how the SAP report MC44 can be used to measure inventory turns and what data is used to calculate this ratio.
Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory at value
If you are not familiar with the term Cost of Goods Sold, this is the cost of your revenues.
Average Inventory is measured in value and not in volume.
If you divide both elements you know how often you sold you’re average inventory. “So what?” you ask. I will explain next.
End-users can get confused about the difference between MD04 – Stock/requirement List and MD05 – MRP List. This post will give you the answer on when to use what report and why:
In Supply Chain project environments it is not uncommon that the project goals can be considered rather conceptual for the business key-users. Even when the key-users (or end-users alike) have a good sense they’re contributing to something valuable, the true benefits are hard for them to explain. How do you explain someone how integrated planning and planning across Supply Chain parties contributes to lower stocks and a nicer looking bottom line? Answer: let them experience it!
A classic way of teaching Supply Chain inefficiencies and how to avoid them is the Beer Game. In the Beer Game participants play an actor in a four stage supply chain (from raw material provider to retailer). Each participant’s aim is to fulfill incoming orders by making sure sufficient stock is available for supply. This usually leads to creating the bullwhip effect (small demand variations downstream lead to amplified variations upstream). This is a great way of letting users (but also consultants with more technical background) experience motions in the supply chain.
For detailed instructions on how to play, a primary source is The Beer Game Portal.