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2006-33.82 2005-31.

50 Inventory turnover ratio or Stock turnover ratio indicates the velocity with whi ch stock of finished goods is sold i.e. replaced. Generally it is expressed as n umber of times the average stock has been "turned over" or rotate of during the year. A slow inventory movement has the following disadvantages: Blocking of scarce funds which could be gainfully employed elsewhere; Requiring more strong space resulting in higher maintenance and handling cos ts; Chances of product being outdated or out of fashion especially in case of co nsumer goods; During storage for excessive period quality may deteriorate due to inherent factors like rusting loss of potency etc. A high inventory turnover ratio indicated that the product is selling well. High rate of inventory turnover. This can imply that purchasing is tightly manag ed, but it can also mean that the company does not have sufficient cash to keep ordinary inventory levels on hand, and so is foregoing possible sales. If cash l evels are low and/or debt levels are high, this implies that the company has sig nificant cash problems, and is deliberately keeping inventory levels lower than they should be Inventory turnover ratio reveals the productiveness of a particular company. A l ow ratio indicates that the company is poor at handling their inventory. A low i nventory turnover can be the result of overstocking or obsolescence in the produ ct. A low inventory turnover ratio will easily lead to higher carrying cost and blocking of capital. On the other spectrum, an extreme high inventory turnover r atio also indicates inadequate performance by a company. A high inventory turn i ndicates that the company is not closely mentoring the demand of their product l ine thus buying and turning inventory real fast. A high turnover can indicate th at the company has a chance of losing business due to stock shortage. Also, high a turnover leads to higher transactions cost. how to improve inventory First, take an end-to-end view in addressing inventory. You need to optimize you r supply chain, make your production processes lean, and optimize your relations hip to your customers. When you solve the inventory turnover issue correctly fro m a Lean perspective, everyone benefits in real terms. Your supplier is enabled to produce and deliver materials in a timely, low cost fashion that allows you t o minimize your inventory and cost of materials while elevating your supplier s co mpetitiveness as a business. When you establish partnering relationships with yo ur customers, you can enable them to make their demand for products more predict able thereby allowing you to minimize finished product inventory without failing to meet their needs for volume and timeliness. Second, perfect your value stream operation by following the precepts of Lean. D efine value from your customer s perspective, map your value stream, flow the proc ess, establish pull by the customer, and perfect all operations by eliminating w aste from the value stream. These steps shrink lead-time, minimize inventory at every point, and drive wastage out. Margins improve, not shrink, as unit cost is reduced. If you follow these guidelines, your improvements in inventory turnove r will truly reflect efficient management and the emergence of a Lean enterprise .

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