1) Inventory Turnover (Raw Materials Only): Inventory Turnover (Raw Materials Only)

measures the rate at which a company's inventory of raw materials is used and/or sold and
replaced (i.e., "turned") over a given period of time.

 A relatively high value for this KPI indicates that the company's inventory of raw materials is
turned several times throughout the measurement period, but may also be a leading indicator of
potential for backorders and/or a lack of cost avoidance within the procurement function (i.e.,
purchasing in bulk to replenish inventory of raw materials, when possible, to reduce
procurement costs).

On the other hand, a relatively low value may indicate that the organization's
purchasing/procurement, sales and related forecasting functions are not working in concert to
determine the appropriate inventory levels of raw materials based on forecasted demand.

Formula: Total Cost of Goods Sold i.e. Raw material consumed in given period / ((Inventory
Value of Raw Materials at Start of Measurement Period + Inventory Value of Raw Materials at
End of Measurement Period) / 2)

Example: For company ABC, consider Cost of Raw material consumed in a year is Rs 39,00,000
and average stock of raw material is Rs. 6,50,000. Then Inventory turnover ratio (raw material
only) can be calculated as: 39,00,000/6,50,000 = 5.54 times

This can be calculated on quarterly basis or annual basis for raw material. And target should be
to improve this ratio after establishing a base level depending on past year’s data.

Steps for measuring this ratio for KCPL:

a) First is to decide time frame of measuring this ratio i.e. monthly or quarterly or annually

b) Suppose we take time frame as monthly: First we need to measure monthly consumption of
raw material in cost amount (Rs.)

This can be obtained by consumption ledger entries in RMAT category for a given month.
From all the consumption ledger entries for RMAT coil consumption entries should be
deleted in order to obtain actual quantity of raw material consumed in a given month.

Consider the value obtained after doing above activity be Rs X

c) Third step is to measure average raw material stock: This can be obtained by

[Opening RMAT stock (Rs) + Closing RMAT stock (Rs)]/2 = Rs Y

d) Inventory turnover ratio (RMAT) = X/Y times

 e) Target should be to improve this ratio considering minimum stock to be maintained for raw
material to avoid stockout situation.

2) Manufacturing Schedule Adherence: The absolute variance of actual production to

scheduled production.

Formula :(|Scheduled Production – Actual Production|)/Scheduled Production

Interpretation: When manufacturing over or under produces against plan, either service level or
inventory investment is adversly affected. Assertive continuous improvement programs should be in
place to decrease the variance.

Example: Suppose weekly production plan schedule is of 40 units and actual production
achieved by the end of the week is 35 units.

Manufacturing schedule adherence = (40 – 35)/ 40 = 0.125

Target should be to keep the ratio to 0 or close to 0. If the ratio is increasing above zero it indicates
deviation from planned schedule target.

Monitoring this parameter on weekly basis can help us to improve scheduling process and help us
decide schedule target for next week.

3) Percentage of material receipt: Weekly material receipt percentage against planned

collection

Example: Suppose we have planned collection of Rs 1.2 crore for a given month. We divide this
collection amount in four weeks for example 20 % i.e. Rs 24 lacs in first week, 20 % i.e. Rs 24 lacs in
second week, 30 % i.e. Rs 36 lacs in third week and rest 30 % i.e. Rs 36 lacs in fourth week.

Now we have to take ratio of actual material receipt in all the weeks and calculate receipt
percentage.

Let us assume actual weekly receipt is Rs 15 lacs, Rs 20 lacs, Rs 35 lacs and Rs 40 lacs respectively in
weeks 1 to 4.

We get receipt material percentage as W1 = 15/24 x 100 = 62.5 %

W2= 20/24 x 100 = 83.3 %

W3= 35/36 x 100 = 97.2 %

W4= 40/36 x 100 = 111.1 %

For above example, we see that collection is close to planned receipt in week 3 and in week 4 it is
more than the planned receipt but overall monthly receipt is Rs 1.1 crore against planned receipt of
Rs 1.2 crore. Calculating such ratio on weekly basis can help us improve co-ordination regarding
material collection with purchase department. Also, we can start this first for regular products like
CBP, CCP & KCT.
4) Average number of purchase requisition per planner: Total number of purchase requisitions
by number of planners

For example: No of purchase requisitions raised by PPC in given month is 90. No of planners
is 3. So, number of purchase requisition per planner per month = 90/3 = 30

Suppose Current status = 30

Target status = 25

5) Percentage of planned purchase requisition to total number of purchase requisition:

Percentage of indents in Reason code R1 i.e. MRP divided by total number of indents

We have started classifying all the requisitions on basis of different purpose. The
objective of this ratio is to increase our planned activity.

Example: Suppose total number of indents in a given month from PPC is 100 and no.
of indents in code R1 i.e. MRP is 35.

Then current status = 35/100 x 100 = 35 %

Target should be to improve this percentage i.e. say 50 %.