Measuring the performance of merchandise is necessary in order to gain an understanding of the products which have performed well and which have not performed as per the target. The performance can be as per plan, below the plan or above the plan.
Inventory turnover, which may also be called inventory or merchandise stock turn or just turnover, is a key to merchandise performance. Inventory turnover measures how long inventory is on hand before it is sold. Items that are on hand a short time have a high turnover those that are on hand longer having a low turnover.
Retailers calculate inventory turnover in several ways:
1) Net sales /average inventory at retail
2) Cost of merchandise sold / average inventory at cost
3) Units sold /average units in inventory
4) Net sales = turnover * average inventory at retail.
5) Average inventory at retail = net sales /turnover
This method is used to analyze the- various alternatives available with regard to vendors and select one that best satisfies store needs. This method is based on the concept that customers look a retailer or a product as a collection of features and attributes.
The model is framed to forecast customers’ evaluation/judgement of a product or retailer based on:
(i) Products performance on customers’ parameter, and
(ii) The significance of those parameters to the customer.
Sell Through Analysis:
This method describes the comparison between the actual and forecasted sales volume to determine whether early markdowns should be applied or fresh order for additional merchandise should be given to satisfy current demand. There is no universal rule to indicate when a markdown should be introduced or additional stock of merchandise be ordered. It simply depends on the experience with the merchandise, a buyer has in the past year.
The ABC analysis sometimes known as Always Better Control is an inventory classification process where total inventory is classified into three categories:
A: Outstandingly important;
B: Of average importance and
C: Relatively unimportant as a basis for a control scheme.
Each firm whether small or big has to maintain several types of inventories. Some are small in size but are costly ones, some large in size but have less cost. It is never advisable to keep the same degree of control on all the items. The firm should pay maximum attention to those items which are costly and less attention to those which are cheaper. Therefore, firm should be selective in its approach to control investment in various types of inventories. This logical approach is known as ABC analysis and tends to measure the importance of each item of inventories in terms of its value.
Strategy to be followed:
In case of ‘A’ items keen attention is paid to work out the requirement, safety stocks, order scheduling, and prompt receipt and inspection. “A” and “B” items should be frequently reviewed and close watch is kept on their consumption pattern, stock balance and refill orders. For inexpensive ‘C’ items control is comparatively stress free.