How top fmcg salesman calculate days of supply inventory in selling period?
What is the precise definition of inventory in Fmcg Business?
The term “Inventory” is originated from the French word “Inventaire” and the Latin “Inventariom” which implies a list of things found. The term has been defined by the American Institute of Accountants as the aggregate of those items of tangible personal property which:
are held for sale in the ordinary course of business•
are in the process of production for such sales, or•
are to be currently consumed in the production of goods or services to be available for sale•
The term inventory refers to the stockpile of the products a firm is offering for sales and the components that make up the product. Inventories are the stocks of the product of a company, manufacturing for sale and the components that make up the product. The various forms in which inventories exist in a manufacturing company are as follows:
Raw materials•
Work-in process•
Finished goods•
Stores and spares•
However, in commercial parlance, inventory usually includes stores, raw materials, work-in-process and finished goods. The term inventory includes – raw material, work in process, finished goods packaging, spares and others stocked in order to meet an unexpected demand or distribution in the future.
What are the 5 types of inventory?
There are many ways to classify inventories. In the context of Manufacting , One often-used classification is related to the flow of materials into, through, and out of a manufacturing organization.
Raw materials. These are purchased items received that have not entered the production process. They include purchased materials, component parts, and subassemblies.
Work-in-process (WIP). Raw materials that have entered the manufacturing process and are being worked on or waiting to be worked on.
Finished goods. The finished products of the production process that are ready to be sold as completed items. They may be held at a factory or central ware- house or at various points in the distribution system.
Distribution inventories. Finished goods located in the distribution system.
Maintenance, repair, and operational supplies (MROs). Items used in produc- tion that do not become part of the product. These include hand tools, spare parts, lubricants, and cleaning supplies.
What is the simplest way to calculate inventory days?
How do you calculate monthly inventory days?
Inventory at end of the month which is equivalent to average number of days of consumption of the material.
For example, if average consumption of the material in question is 10 units per day and month end inventory is 50 units, monthly inventory days of the material is 5.
What is days’ sales inventory in Fmcg,Fmcd?
Magsons sell 10 mobile phones a day. It has 100 phones in stock. Magsons have 10 sales days of inventory.
Its tougher when sales volume varies but easier to average if Salesman is talking about 90 sales days of inventory instead of just a few days.
Good sales history tells the salesman,he sells 12 mobiles a day during festivals, and almost none during off season, he adjusts seasonally.
How do you calculate the weighted average ending inventory?
Also known as the weighted average cost, the weighted average inventory method is an inventory valuation formula used in eCommerce accounting to determine the average amount of money that goes into the cost of goods sold (COGS) and inventory.
The weighted average cost isn’t hard to arrive at, even if you are not good at numbers! All you need is to take the total cost of goods purchased, and then divide it by the number of units available for sale. To determine the cost of goods available for sale, add any recent purchases to the total amount of beginning inventory.
Here is the WAC formula:
WAC per unit = Cost of goods available for sale/Total number of units in inventory
Let’s look at an example: Let’s say your store had a beginning inventory of 300 units for Rs30 per unit on January 1, 2023. Then you purchased additional units as follows:
Opening inventory: Rs 30 x 300 = 9,000
Jan 20: purchase of 150 units for 40 per unit = 6,000
Feb 15: purchase of 100 units for 35 per unit =3,500
March 10: purchase of 200 units for 50 per unit = 10,000
Let say your store made the following sales in the same period:
End of February: 120 units
End of March: 60 units
Cost of goods available for sale = 9,000 + 6,000 + 3,500 + 10,000 = Rs28,500
Total units available for sale = 300 + 150 + 100 + 200 =750 units
WAC per unit = 28,500/750 = 38
In the same period, 180 units were sold. So, we will assign 38 per unit sold, which is 180 x 38 = 6,840. The rest which is 28,500- 6,840 = 21,660 goes to the ending inventory for the Jan-March period.
The Impact of Beginning Fmcg Inventory Control
Examine each of the following comparative illustrations noting how the cost of beginning inventory and purchases flow to ending inventory and cost of goods sold.
How do I calculate ending inventory with out having opening Fmcg Stockist inventory?
Take a physical count.
Multiply the physical count for each item times its cost per unit.
Then, add up the extended costs for each item counted.
Systemically, you can’t get to the end, without knowing the beginning.
A+B-C=D (i.e. you can’t calculate D without knowing A)
What are the inventory costs?
The main cost of course is storage. When you carry inventory you have to put it somewhere, and unless you have some kind of magical black hole in your house you have to pay for that space in which you store it. Other than that the only other costs are what you take on to protect it. For example, if a fire happens where you store the inventory you are going to want to have insurance. If the inventory can perish you can lose money if you don’t sell it in time and have to throw it out. When it comes to carrying inventory it’s all about trying to think of the little costs that can add up but are quite important.
Inventory costs refer to the expenses associated with holding and managing inventory, such as storage, insurance, and shrinkage (the loss of inventory due to theft or damage). These costs can also include the cost of capital tied up in inventory, as well as the cost of obsolescence (when inventory becomes unsellable). Additionally, inventory costs may include the cost of ordering and receiving new inventory, such as transportation and handling fees.
What are the holding costs and ordering costs in inventory costs?
let us understand Economic Order Quantity (EOQ) first
It is the quantity which minimises the total of inventory holding cost and ordering cost.
In order to understand how these two costs affect the total cost and each other, let us take an example
Party A requires 300 quantity of given product per month. There can be multiple options in which it can order
Order once a month
Ordering cost – once
Qty / order – 300
Storage needed – for a months qty minimum
Order 10 times a month
Ordering cost – 10 times
Qty / order – 30
Storage needed – for 3 days minimum
Now if we compare the 2 options above, in option 1, there will be only one time ordering cost. However, party A needs to hold the inventory for one month. On the other hand, in option 2, the ordering cost would be for 10 times but inventory hold would be of only 3 days.
Thus, there is always a trade off between the two costs and one should try to minimise the total of the two costs.
This formula can be used to calculate the EOQ
What are the costs associated with inventory control? What is the significance of economic order quantity?
The costs of inventory control range: Costs range from next to nothing to enormously high depending on the nature, value and risks of what is being inventoried and what performance level of control is needed. For example, there may be little inventory control over copier paper after it is received, but intense records keeping obligations with respect to valuable or hazardous or sensitive materials. Note that some inventory items such as engineering drawings that once were kept as “physical” inventory (and some may still be) have been virtualized, offering convenience, but the inventory control level and costs may be the same or higher as when on paper.
There is also a “cost of quality.” That is, inventory costs go up if sloppy physical control or sloppy records or both cause items in inventory to be lost or stolen or breaks a some chain of custody. Costs for tracking and remediation go up if the individual items must be serial number tracked or lot tracked or both (lot tracked involves items made in batches for which the test results of the batch are important records). Losing assets may have important and unpleasant costs related to corporate account and tax accounting.
Retail organizations have all of these costs plus “loss prevention” costs to minimize loss of merchandise to shoplifters or to others with access to inventory on display. Often limited shelf life adds to costs.
Note that inventory managers formally or more often informally may aspire to generating “inventory profits” particularly in time of inflation or for volatile pricing of commodities. Overdone, this can create unwanted costs as well as service interruption to users of the inventory.
Economic Order Quantity (EOQ): The “economic” order quantity assessment applies principally to repeat external orders supporting manufacturing, stockrooms, retail for resale and other routine replenishment. It could apply to some repetitive services.
For a prescribed annual (or other time interval) demand, the EOQ tradeoff has to do with a) the fact that increasing order size can be a benefit because it reduces the number of orders per year and, therefore the cost of processing, receiving, validating and paying for each order, versus b) smaller orders reduce the average capital investment in what is bought and probably reduced storage costs.
As shown below, a repetitive annual need totaling 1,200 units can be fulfilled monthly, with 100 unit orders, or weekly with 23 unit orders (or many other order sizes).
The chart highlights the inventory impact – about 10 things the average working capital required. [The above chart ignores “safety stock” (a buffer if demand jumps or delivery is interrupted.] To optimize the economic order quantity, one must quantify all relevant costs of each transaction size option. The additional cost of holding more inventory (and average of 50 units rather than 10 units in the above example) may simply be the added cost of money (interest) or may be more complex if shelf life is short or the product is hazardous or at risk of theft or storage space competes with operational space.
Similarly, the transaction cost of initiating many more orders (50 rather than 10) may be a simple per transaction estimate or involve a variety of complex issues – internal costs for keeping a refrigerated product cold from the receiving dock to point of refrigerated storage. For retailers, achieving high sales “fill rate” and the risk of lost revenue may force oversizing orders.
Note that the supplier has a similar assessment to make in terms of delivery size (one might refuse to deliver less than $100). If there is a conflict between optimization the eventually implemented solution may require negotiation. Vendor Managed Inventory often puts the whole matter into the hands of the seller.
How does inventory finance work?
Inventory finance is a type of financing that allows businesses to purchase goods they plan to resell. Instead of paying for the items upfront, inventory finance provides a line of credit that can be used to cover the cost of purchasing products in bulk. This helps businesses free up cash flow and acquire more items to grow their business.
Businesses typically use inventory finance when they have limited access to capital or need additional funds quickly. The terms and conditions vary from lender to lender, but most lenders will require collateral such as inventory, accounts receivable, or other assets. Lenders may also require financial statements and other documents, such as tax returns, to assess the risk associated with providing the loan.
Once an inventory finance arrangement is established, lenders will typically advance funds to cover the cost of product purchases. The borrower then sells the inventory and collects payments from their customers to repay the loan. Sometimes, a lender may also provide additional funds for working capital purposes, such as marketing or operational costs associated with managing inventory.
Inventory finance can help businesses access additional capital and meet customer demands by allowing them to purchase more stock than they would normally have access to using traditional financing methods.
How is inventory change calculated?
The change in inventory is literally how much inventory changed from one accounting period to the next.
It is the beginning inventory minus the ending inventory (A-D, in the example below, $100)
What is the inventory turnover ratio and how can it be improved?
What is the inventory turnover ratio?
Inventory turnover is a financial ratio showing how many times a company turned over its inventory relative to its cost of goods sold (COGS) in a given period.
A company can then divide the days in the period, typically a fiscal year, by the inventory turnover ratio to calculate how many days it takes to sell its inventory, on average.
How do you deal with excess stock in your inventory?
There are several approaches you can take to reduce excess inventory in your inventory.
1. Sell it
Reduce your production or purchases if your stock becomes excessive due to inaccurate forecasting. Coordination with relevant departments is required. Tell me about your condition. Also, don’t place a new order before your stock runs out.
2. Sell at a discount
You can sell it at a discount to expedite the stock’s decrease to a healthier level. Especially if you no longer produce this excess stock.
3. Return it to the supplier
You can return the extra inventory to the supplier. But, of course, it will be determined by your agreement with them.
4. Give it to your after sales department
This excess stock can be used as an after-sales part. Particularly if you work in the automotive industry.
6. Donate it
You can donate your excess stock to schools or foundations that will benefit from it. It can also help your company’s reputation as a socially responsible company.
5. Dispose it
This may be the final step if the previous steps cannot be completed. Just dispose it. You could lose. However, it will not be as big as if you keep it and pay a storage fee for it.
Why is it bad for a retailer to carry high inventory if the large purchase brings the cost of goods down?
For instance, Fmcg company dealer sells 50 units of commodity X at the rate USD 2 per unit to company B in a month.
Now company A offers a discount of 50% if order quantity is more than or equal to 1000. So the company B whose monthly requirement is no more than 50 units plans to procure 1000 units at discounted price.
Now to use those 1000 units, Company B needs around 20 months. So the inventory will have to be carried for the next 20 month without giving any monetary returns.
This inventory carrying cost will be much larger than the items purchsed at discounted price. Also carrying huge inventory will block circulation of funds.
This is the reason most companies prefer the items to be procured keeping EOQ (Economic Order Quantity) into consideration. The EOQ is the number of units that a company should procure in order to minimize the total costs of inventory, which includes holding costs, ordering costs, shortage costs and other variable costs.
How do you handle stock and inventory issues in a retail environment?
Some of the Potential stock and inventory issues faced by retailers are given below:
Stock-outs: When a retailer runs out of a particular product, it can lead to lost sales and disappointed customers.
Overstocking: If a retailer has too much of a particular product, it can result in excess inventory and increased storage and holding costs.
Slow-moving inventory: If a retailer has products that are not selling well, it can tie up valuable inventory and lead to reduced profitability.
Outdated or expired products: If a retailer has products that are past their expiration date or no longer in demand, it can lead to waste and reduced profits.
Poor inventory accuracy: If a retailer’s inventory records are not accurate, it can lead to problems with ordering and replenishment, and potentially result in stock-outs or overstocking.
Loss or damage: Retailers may experience loss or damage to their inventory due to factors such as theft, natural disasters, or accidents.
The solution is to have a good inventory system and continuously monitor and improve the same.
Implement a robust inventory management system: By using an inventory management system, retailers can track stock levels, identify slow-moving or excess inventory, and optimise the replenishment process.
Set up alerts and reorder points: Retailers can set up alerts to notify them when stock levels reach a certain point, so they can replenish inventory before it runs out. They can also set up reorder points to trigger automatic replenishment orders when stock reaches a predetermined level.
Use forecasting and demand planning tools: Retailers can use forecasting and demand planning tools to predict future demand and plan their inventory accordingly. This can help to prevent stock-outs and reduce excess inventory.
Monitor sales data and trends: By analysing sales data and trends, retailers can better understand which products are selling well and which are not, and adjust their inventory levels accordingly.
How do you reduce days inventory outstanding?
Reduce your average inventory and/or
Increase your cost of sales
Go through your inventory with a fine tooth comb. Strategize how you can eliminate/liquidate excess, slow-moving, discontinued and obsolete inventory. Of course, you’ll have to take heavy markdowns, but this deadweight inventory is just dragging you down.
First-In, First-Out Calculations
With first-in, first-out, the oldest cost (i.e., the first in) is matched against revenue and assigned to cost of goods sold. Conversely, the most recent purchases are assigned to units in ending inventory. For Mueller’s nails, the FIFO calculations would look like this:
Last-In, First-Out Calculations
Last-in, first-out is just the reverse of FIFO; recent costs are assigned to goods sold while the oldest costs remain in inventory:
Some methods are FIFO, LIFO, and weighted average. FIFO (first in first out) assumes sales draw from the oldest inventory on hand which, given inflation, tends to be the lowest cost inventory. That can increase booked profits and taxes, and raise the value of the stock on hand. When I did FIFO, we kept track of each lot acquired, its date and cost.
LIFO (last in first out) assumes the sales draw from the newest inventory on hand which tends to reflect the replacement cost.
We have so much room for improvement. Every aspect of our lives must be subjected to an inventory… of how we are taking responsibility.
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