Finished Goods Inventory Metrics (PDFDrive)

Hot Topic Report
Finished Goods Inventory Management

New Views on an Old Issue
Supply Chain Consortium

Benchmarking & Best Practices
July 30, 2010

www.supplychainconsortium.com
Table of Contents Page

Introduction 3
Survey Participant Demographics 4
Organizational Responsibility 8
Geographical Responsibility 10
Setting Finished Goods Inventory Targets 11
Accountability for Finished Goods Inventory Levels 13
Charged For or Owns Inventory 15
Finished Goods Inventory Metrics 17
Finished Goods Inventory Dollars as a Percentage of Sales 20
Reasons for Finished Goods Inventory Changes: 2009 21
Customer Satisfaction Changes 22
Finished Goods Inventory Improvement Potential 24
Areas of Change For Finished Goods Inventory 26
Processes for Inventory Management 28
Comments from Survey Participants 30
Closing Thoughts 31
Report Authors 32
Copyright © 2010 Supply Chain Consortium. All rights reserved. Confidential and Proprietary 2
Introduction
The Finished Goods Inventory Management Hot Topic Survey received the highest number of
responses since the Consortium began these types of surveys. Clearly, the inventory topic is
important to all industries and market segments, particularly with the financial conditions that
exist today. The goals of this survey were to understand:
How companies organize to manage finished goods inventory;
Who has responsibility for finished goods inventory;
How finished goods inventory targets are set and by whom;
What performance metrics are used;
How finished goods inventory and customer service were impacted in 2009;
What potential improvements are being considered; and
Details about specific practices used for finished goods inventory management.
The responses have been analyzed in aggregate for each key point and presented by industry to
provide a more detailed assessment. The conclusions page outlines the most significant findings
from the survey, but the data is presented throughout the report so that readers may draw their
own conclusions.
Tompkins Supply Chain Consortium thanks everyone who took the time to complete the survey.
Survey Participant Demographics
Percentage of Survey Respondents by Industry
Retailer /
Distributor
30%
Manufacturer
70%
Seventy percent of the survey respondents are from manufacturing companies, and 30%
are from retail and distributor organizations.
However, roughly the same number of manufacturing and retail organizations were asked
to complete the survey.
Percentage of Respondents by Industry Segment
Industrial Commercial 17.1%

Food and Beverage 16.2%
Electronics 9.5%
Automotive, Truck and Vehicle 7.6%
Department and Discount 6.7%
Hobby, Toys, Arts and Crafts, and Sporting Goods 5.7%
Healthcare and Medical Products 5.7%
Hardware and Home Improvement 5.7%
Pharmaceutical 4.8%
Home Products, Furniture and Appliance 4.8%
Beauty, Health and Wellness 4.8%
Apparel, Fabric and Accessories 4.8%
Consumer Goods 2.9%
Specialty 1.9%
Service Provider 1.9%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%
Throughout the report, the number of responses and the percentage of companies answering
each question varies depending on the topic and question, but in general, the distribution of
responses across industry segments in the figure above hold true for the results in this report.
Percentage of Respondents by Title
Supervisor and Below

4%
Manager
VP and Above
25%
35%
Director
36%
There is a good distribution of respondents across supply chain titles, representing all
organizational levels of the supply chain.
Percentage of Respondents by Country
100%
89.5%
90%
80%
70%
60%
50%
40%
30%
20%
6.7%
10% 1.0% 1.0% 1.0% 1.0%
0%
USA Canada UK Belgium Brazil Germany
There is an obvious bias toward companies based in the U.S.

However, Canada represents nearly 7% of respondents, and there is 1% from each of
the other four countries identified.
Organizational Responsibility
How Responsibility for Finished Goods Inventory is Segmented Organizationally in Respondents’ Companies
Corporate-wide Division-wide Geographically Did not Answer
Planning Inventory Needs 45.7% 39.0% 14.3% 1.0%
Determining Inventory Levels 42.9% 39.0% 18.1% 0.0%
Distributing Inventory 40.0% 34.3% 24.8% 1.0%
Controlling Inventory 33.3% 40.0% 25.7% 1.0%
Planning inventory needs, determining inventory levels and distributing inventory are most
often performed company-wide. Controlling inventory is commonly completed by a
division-wide organization.
Organizational Responsibility
Industry Analysis – Corporate, Divisional or Geographical Responsibility
Automotive – The automotive industry is split between corporate and division

responsibility.
Consumer Goods – Responses for the consumer goods industry are dispersed among
corporate, division and geographic responsibility.
Retail – Retail companies are weighted heavily toward corporate responsibility for all
aspects of inventory management.
High Tech – High tech is split between corporate and geographic responsibility.
Industrial Commercial – The industrial commercial industry is divided between corporate
and division responsibility for all aspects of inventory management.
Food and Beverage – Generally for food and beverage companies, responsibility is
division-wide – except for planning, which is a corporate responsibility.
Pharmaceutical – The pharmaceutical industry places responsibility geographically for
planning, but divisionally for all other aspects of inventory management.
Geographical Responsibility
How Responsibility for Finished Goods Inventory is Segmented Geographically in Respondents’ Companies
Domestic Only International Only Domestic and International Did not answer
Planning Inventory Needs 35.2% 1.0% 61.9% 1.9%
Determining Inventory Levels 36.2% 1.0% 59.0% 3.8%
Distributing Inventory 32.4% 1.0% 63.8% 2.9%
Controlling Inventory 37.1% 0.0% 58.1% 4.8%
In a majority of companies that have an international component for finished goods inventory,
there is one organization that handles both domestic and international finished goods
inventory.
This applies to all industries.
Setting Finished Goods Inventory Targets
Areas of Respondents' Companies that are Primarily Responsible for Setting Finished Goods Inventory Targets
100% Shared
Procurement / Purchasing 9.5% 36.2%
Merchandising 5.7% 13.3%
Manufacturing 3.8% 32.4%
Distribution Operations 4.8% 25.7%
Customer Service 2.9% 13.3%
Inventory Management 20.0% 43.8%
Forecasting 9.5% 29.5%
Marketing 3.8% 21.0%
Retail Operations 1.0% 9.5%
Sales 2.9% 19.0%
Finance / Accounting / Controller 4.8% 26.7%
Executives 6.7% 32.4%
Logistics and Transportation 5.7% 21.9%
Not surprisingly, the inventory management organization in many companies is responsible for
setting finished goods inventory targets either by themselves or as a shared responsibility.
Several other functional areas are involved in setting finished good inventory targets. This
implies that the sales, inventory and operations planning (SI&OP) process is being used with
cross-functional representation for setting inventory targets.
Setting Finished Goods Inventory Targets
Industry Analysis – 100% of Responsibility vs. Shared Responsibility
Auto – The auto industry is twice as likely to share the responsibility of setting finished
goods inventory targets across multiple functions than have one group 100% responsible.
Consumer Goods – Consumer goods companies are three times more likely to share
responsibility.
Retail – Retailers are four times more likely to share responsibility than to have one
organization responsible for setting inventory targets.
High Tech – The high-tech industry is two and a half times more likely to share
responsibility across the organization.
Industrial Commercial – Industrial commercial companies are five times more likely to
share responsibility for setting inventory targets.
Food and Beverage – Food and beverage companies share the responsibility for
inventory targets 90% of the time.
Pharmaceutical – Pharmaceutical companies are eight times more likely to share
responsibility than not.
Accountability for Finished Goods
Inventory Levels
Areas of Respondents’ Companies that are Primarily Accountable for Levels of Finished Goods Inventory
100% Shared
Sales 1.9% 20.0%
Several different organizations within companies have responsibility for the levels of finished
goods inventory. The inventory management department is most likely to be a accountable for
the inventory level, but many functional areas are also involved in managing finished goods
inventory.
Surprisingly, executives also play a significant role in managing finished goods inventory levels.
Accountability for Finished Goods
Inventory Levels
Industry Analysis
Industry 1st Choice 2nd Choice 3rd Choice

Auto Procurement Inventory Distribution
Management Operations
Consumer Products Inventory Procurement Manufacturing
Management
Retail Merchandising Inventory Distribution
High Tech Procurement Inventory Manufacturing
Management
Food and Beverage Manufacturing Procurement Distribution
Operations
Pharmaceutical Inventory Distribution Procurement
This chart identifies the functional areas most selected as being accountable for finished
goods inventory levels by industry.
Charged For or Owns Inventory
Areas of Respondents’ Companies that Get Charged for or Own Finished Goods Inventory
100% Shared
Sales 5.7% 15.2%
Areas of companies that get charged for or own finished goods inventory are spread out among
several functional areas with inventory management, manufacturing, procurement and distribution
operations being selected most frequently in the survey.
Executives also are charged with ownership of finished goods inventory in approximately one out
of 12 companies.
Charged For or Owns Inventory
Industry Analysis
Auto Inventory Distribution Procurement

Consumer Products Procurement Inventory Manufacturing
Management
Retail Retail Operations Merchandising Inventory
Management
High Tech Inventory Executives Manufacturing
Management
Food and Beverage Inventory Sales Manufacturing
Management
Pharmaceutical Distribution Inventory Manufacturing
Operations Management
This chart identifies the functional areas most likely to be charged for or own finished
goods inventory levels by industry.
Finished Goods Inventory Metrics
Percentage of Respondents Utilizing Finished Goods Inventory Metrics
Inventory Turns 83.8%

Inventory Balance (units, dollars, lbs, etc.) 81.0%
Days of Supply 75.2%
On-time Shipment 66.7%
Order Fill Rates 64.8%
Inventory Accuracy 61.9%
Out of Stocks 47.6%
SKU In-stock Percentages 36.2%
Backorders 35.2%
Shrinkage (all causes) 35.2%
Gross Margin Return on Investment 25.7%
Holding Costs 17.1%
Percentage of Inventory in Acounts Payable 9.5%
Other 7.6%
Did Not Answer 1.0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Detailed Analysis
Not surprisingly, the inventory turns metric is the most commonly used measurement for
finished goods inventory.
Companies also frequently track the actual balances of dollars, units or pounds of
finished goods inventory.
The next most popular metric is days of supply, which is also growing in use across
several major industries – particularly with retailers – as a good indicator of demand
changes.
The service metrics of on-time shipment and order fill rates are regularly utilized as well.
Inventory accuracy was also selected as an important metric by more than 50% of
survey participants.
Industry Analysis
Auto Inventory Balance Order Fill Rate On-time Shipment
Consumer Products Inventory Balance Inventory Turns On-time Shipment
Retail Inventory Turns Inventory Balance Days of Supply
High Tech Inventory Turns On-time Shipment Order Fill Rate
Food and Beverage Days of Supply Inventory Balance Inventory Turns
Pharmaceutical Inventory Turns Days of Supply Inventory Balance
This chart indicates the most selected inventory metrics by industry.
Finished Goods Inventory Dollars as a
Percentage of Sales
Percentage of Respondents Experiencing a Change in Finished Goods Inventory Dollars as a Percentage of Sales
> 10% 1-9% 1-9% >10%
Reduction Reduction No Change Increase Increase
Year-end 2009 vs. Year-end 2007 34.3% 37.1% 6.7% 9.5% 5.7%
Year-end 2009 vs. Year-end 2008 22.9% 41.0% 12.4% 8.6% 6.7%
More than 40% of companies experienced a 1-9% decrease in finished goods inventory as
a percentage of sales between 2008 and 2009. During the same time period, nearly one-
quarter of respondents noticed a reduction greater than 10%. Thus, these results indicate
a significant decrease in finished goods inventory during 2009.
From 2007 to 2009 there were also major reductions in finished goods inventory, leading
to a trend that continued through 2009.
While the overall results show a decrease in finished good inventory relative to sales, there
are individual companies that did not see this effect. Reasons for this may include that they
were not strongly impacted by economic conditions, they did not reduce inventories
proportionally with the sales movement, or that some organizations saw declines in sales
beyond the amount of inventory that they could reduce.
Reasons for Finished Goods Changes: 2009
Reasons for Finished Goods Inventory Changes
Smarter Planning 21.1%

Drop in Sales 21.1%
Management Focus 19.7%
Sales Growth 10.5%
Lower Stock Levels 6.6%
Inventory Mix 5.3%
No Impact 5.3%
Inventory Shrink 2.6%
Fill Rate Changes 2.6%
End of Life Management 1.3%
Market Changes 1.3%
Technology 1.3%
Buying Less 1.3%
0% 5% 10% 15% 20% 25%
Percentage of Respondents
Better planning practices helped a large percentage of respondents reduce their finished goods
inventory. Likewise, a drop in sales forced numerous companies to reduce inventory.
During the slowed economic conditions of 2009, management turned their attention to reducing
finished goods inventory to maintain profitability, causing management focus to be one of the
top reasons for the changes.
Customer Satisfaction Changes
Changes in Customer Satisfaction Levels from Year-End 2008 to Year-End 2009

(Measured by Order Fill Rates or the Equivalent)
50%
Percentage of Respondents
39.1%
40%
32.4%
30%
20% 15.2%
10% 6.7%
2.9% 3.8%
0%
> 10% 1-9% Reduction No Change 1-9% Increase >10% Increase No Response
Reduction
Customer satisfaction levels increased for nearly half of the companies, remained the
same for 32%, and declined for 18%.
Clearly, reduced inventory levels did not have a major negative impact on service levels.
Customer Satisfaction Changes
Industry Analysis – Increased vs. Decreased Service Levels
Auto – The auto industry shows a similar response to the overall average percentages;
approximately 50% have increased service levels.
Consumer Goods – Consumer goods companies have the same amount of positive
service level responses as negative service level responses.
Retail – Retail’s levels are comparable to the industries overall.
High Tech – The high-tech industry is the only industry with a higher percentage of
companies that saw a decrease rather than an increase in service levels.
Food and Beverage – Food and beverage is highly skewed toward increased levels of
customer service over the past year.
Pharmaceutical – Nearly all companies have experienced an increase, with only a few
companies indicating no change in service performance.
Finished Goods Inventory Improvement Potential
Amount of Improvement Potential for Finished Goods Inventory

Minor Moderate Major Did not answer
Inventory Dollars 23.80% 47.60% 21.90% 6.70%
Holding Costs 57.10% 27.60% 7.60% 7.60%
Inventory Turns 26.70% 48.60% 17.10% 7.60%
Customer Satisfaction 48.60% 29.50% 12.40% 9.50%
Focusing on the amount of opportunity for finished goods improvement in the future,
responses are somewhat conservative. The majority of respondents indicate a moderate
or minor opportunity.
Also, a surprising number of survey participants did not answer this question, possibly
indicating that they are uncertain of the improvement potential or believe it to be negative.
Finished Goods Inventory Improvement Potential
Industry Analysis – Minor, Moderate or Major Improvement Potential
Auto – In the auto industry, approximately 11% of companies are optimistic about future
improvements.
Consumer Goods – For the consumer products industry, less than 5% see favorable
improvements.
Retail, High Tech and Pharmaceutical – The retail, high tech and pharmaceutical
industries have more than one-fifth of respondents with major optimism for improvements.
Food and Beverage – For food and beverage, 15% are optimistic about future finished
goods improvements.
Areas of Change for Finished Goods Inventory
Areas of Change Needed for Finished Goods Inventory Improvement

Suppliers Policies Processes Logistics Technology People Customer
Inventory Dollars 54.3% 46.7% 67.6% 23.8% 43.8% 45.7% 32.4%
Holding Costs 36.2% 38.1% 45.7% 34.3% 34.3% 29.5% 16.2%
Inventory Turns 42.9% 47.6% 72.4% 32.4% 50.5% 45.7% 25.7%
Customer Satisfaction 32.4% 35.2% 56.2% 34.3% 38.1% 61.0% 32.4%
A process change is by far the most often identified area that needs improvement for finished
goods inventory.
The second area that needs the most changes depends on the metric:
– Suppliers impact inventory dollars;
– Inventory policies impact holding costs;
– Technology impacts inventory turns; and
– People impact customer satisfaction.
Areas of Change for Finished Goods Inventory
Industry Analysis
Industry Inventory Holding Costs Inventory Turns Customer

Dollars Satisfaction
Auto Policies Policies and Processes and People
Processes Policies
Consumer Products Processes and Suppliers Processes Processes
Suppliers
Retail Processes and Processes Processes Processes
Suppliers
High Tech Processes Processes and Processes People
Logistics
Food and Beverage Processes Processes and Processes and People
Suppliers Technology
Pharmaceutical Processes Processes Processes People
This chart indicates the most selected areas of change needed for given performance
metrics by industry.
Processes for Inventory Management
Inventory Management Process Percentage of Participants

Replenish Inventory When it Runs Low 87.6%
Have Formal Process for SKU Discontinuation 69.5%
Have Formal S&OP (or SIOP) Process 69.5%
Have Access to POS Information 63.8%
Have Product Hierarchy to Increase Forecast Accuracy 62.9%
Do Markdowns 60.0%
Have Formal Process to Forecast New SKUs 55.2%
Have Internal Reverse Logistics Process 53.3%
Do Returns and Markdowns 53.3%
Do Forced Allocations 51.4%
Do Replenishment and Forced Allocations 47.6%
Determine Optimum Safety Stock Working Capital vs. Lost Gross Margin 32.4%
Have Declining Net SKU Base 31.4%
Processes for Inventory Management
Detailed Analysis
Most of the inventory management practices identified by respondents are being performed
by more than 50% of the survey group.
Many people are now discussing Sales and Operations Planning (S&OP) processes, and
surprisingly, a number of companies already have a process in place. However, the success
level of their processes is unclear.
SKU discontinuation has long been a source of problems for operations, yet a large
percentage of companies say they have a process in use.
Contrary to the expectation that point of sale (POS) data would be difficult to obtain, a large
percentage of survey respondents are using POS information for finished goods inventory
management. Again, it is not clear how effectively this data is being used.
Comments from Survey Participants
Below are specific comments from respondents regarding other finished goods inventory practices
and barriers that they felt were important:
SKU Expansion – The main challenges are the number of finished goods inventory SKUs – this
company has more than 10K SKUs – and slow responsiveness of the factory. SKU expansion is
out of control; sales is driving huge marketing efforts and SKUs are growing.
Line and Merchandise Planning – Line and merchandise planning are key, along with
understanding market potential and channel segmentation.
Forecast Accuracy Improvements – Forecast accuracy is the greatest opportunity for
improvement.
Technology Applications – One company is leveraging SmartOps MIPO™ (Multistage
Inventory Planning and Optimization) with robust input and performance monitoring to drive
improvements.
Lean Processes – Putting the remaining parts on Kanban, lean principles are being applied
more. Finished goods are being driven by a single major process.
Business Condition Challenges – Being prepared for change is important. One company notes
that they were not prepared for the sharp decline in business that began in 2007, which is now
very apparent.
Organizational Issues – Many of the processes are in place; the organization is dysfunctional.
Closing Thoughts
Conclusions
In general, finished goods inventory management is performed at the corporate level.

However, if the organization is very large, then division-wide management is most often found.
An inventory management department is often responsible for setting finished goods inventory
targets, but the responsibility is typically shared by several supply chain functions.
Inventory turns, inventory balances and days of supply are the top three measurements used
for finished goods inventory.
Overall, companies indicate that they saw reductions in finished goods inventory dollars as a
percentage of sales in 2009. The primary reasons associated with this performance
improvement are smarter inventory planning, drops in sales that forced major inventory
reductions, and increased management focus on finished goods inventory.
Customer satisfaction levels (as measured by fill rates) also increased, indicating that cutting
finished goods inventory did not negatively impact customers.
The supply chain areas in which changes are most needed with respect to finished goods
inventory are processes, people and inventory policies.
Report Authors
To learn more about finished goods inventory management, as well as benchmarking and best
practices, additional resources are available to members through the Supply Chain Consortium:
www.supplychainconsortium.com.
Qualified companies may join the Supply Chain Consortium’s LinkedIn or Xing Group:
www.supplychainconsortium.com/rc/connections.asp
Bruce Tompkins Chris Ferrell

SUPPLY CHAIN EXCELLENCE
SUPPLY CHAIN EXCELLENCE

Executive Director Associate Director
6870 Perry Creek Road 6435 Hazeltine National

Raleigh, NC 27616 Suite 105
Orlando, FL 32822
(919) 855-5527 Office (407) 362-0369 Office

(919) 345-0479 Mobile (919) 624-3947 Mobile
btompkins@tompkinsinc.com cferrell@tompkinsinc.com
A S S O C I A T E S A S S O C I A T E S

Finished Goods Inventory Metrics (PDFDrive)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Finished Goods Inventory Metrics (PDFDrive)

Uploaded by

Copyright:

Available Formats

Hot Topic Report

Finished Goods Inventory Management

Supply Chain Consortium

July 30, 2010

Table of Contents Page

Percentage of Survey Respondents by Industry

Percentage of Respondents by Industry Segment

Industrial Commercial 17.1%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

Percentage of Respondents by Title

Supervisor and Below

Percentage of Respondents by Country

 There is an obvious bias toward companies based in the U.S.

Industry Analysis – Corporate, Divisional or Geographical Responsibility

 Automotive – The automotive industry is split between corporate and division

Industry Analysis – 100% of Responsibility vs. Shared Responsibility

Industry 1st Choice 2nd Choice 3rd Choice

Industry 1st Choice 2nd Choice 3rd Choice

Auto Inventory Distribution Procurement

Percentage of Respondents Utilizing Finished Goods Inventory Metrics

Inventory Turns 83.8%

Industry 1st Choice 2nd Choice 3rd Choice

Auto Inventory Balance Order Fill Rate On-time Shipment

Consumer Products Inventory Balance Inventory Turns On-time Shipment

Retail Inventory Turns Inventory Balance Days of Supply

High Tech Inventory Turns On-time Shipment Order Fill Rate

Food and Beverage Days of Supply Inventory Balance Inventory Turns

Pharmaceutical Inventory Turns Days of Supply Inventory Balance

 This chart indicates the most selected inventory metrics by industry.

Reasons for Finished Goods Inventory Changes

Smarter Planning 21.1%

Changes in Customer Satisfaction Levels from Year-End 2008 to Year-End 2009

Industry Analysis – Increased vs. Decreased Service Levels

Amount of Improvement Potential for Finished Goods Inventory

Industry Analysis – Minor, Moderate or Major Improvement Potential

Areas of Change Needed for Finished Goods Inventory Improvement

Industry Inventory Holding Costs Inventory Turns Customer

Inventory Management Process Percentage of Participants

 In general, finished goods inventory management is performed at the corporate level.

Bruce Tompkins Chris Ferrell

SUPPLY CHAIN EXCELLENCE

6870 Perry Creek Road 6435 Hazeltine National

(919) 855-5527 Office (407) 362-0369 Office

You might also like

There is an obvious bias toward companies based in the U.S.

Automotive – The automotive industry is split between corporate and division

This chart indicates the most selected inventory metrics by industry.

In general, finished goods inventory management is performed at the corporate level.