Study finds inventory turnover on the rise

By Peter Bradley, Toby Gooley, and James Aaron Cooke -- Logistics Management, 1/1/2000

One of the crucial measures of supply-chain efficiency is the rate of inventory turns. By that measure, industry has made enormous gains in the last few years, according to a new study published the Warehousing Education & Research Council (WERC).

The study, titled Warehouse Inventory Turnover, was conducted by the Warehousing Education Research Center at Miami University in Oxford, Ohio. Researchers canvassed some 305 companies regarding their inventory-management results for 1995 and 1998 as well as their projections for the year 2000.

The study found that inventory turns on average increased a whopping 65 percent from 1995 to 2000. The study also found that companies progressed from an average of eight inventory turns in 1995 to 10.4 turns in 1998. Companies expect to increase that rate to 13.2 turns by the end of this year. (The term inventory turnover refers to how often stock moves through a warehouse on average during a one-year period.)

Nineteen percent of the survey respondents cited upper management's emphasis on inventory reduction as the primary reason for the higher turn rates between 1995 to 1998. Another 10 percent said the growing number of stock-keeping units (SKUs) in the warehouse was the most significant factor behind the increase in annual turns.

Technology is crucial to helping managers accelerate turn rates. Some 16 percent of survey respondents predicted that systems such as inventory-management software and warehouse-management systems would be the major factors driving the rate of inventory turns this year. Another 15 percent said reductions in production and delivery leadtimes would propel inventory turn rates.

The majority--62 percent--of the survey respondents worked for manufacturers. Retailers accounted for another 13 percent and wholesalers for 17 percent. Sixty-three percent of the respondents said they used only private warehouse facilities. Another 27 percent said they used a mix of private and third-party warehouses, while only 10 percent outsourced their entire warehouse operation.

A copy of the study can be obtained for $10 for WERC members and $20 for nonmembers. To obtain one, contact WERC, 1100 Jorie Blvd., Suite 170, Oak Brook, IL 60523. Phone: (630) 990-0001.