Evaluating turns

Inventory turns vary across and within industries. For example, retailers typically have turns in the range of 10 to 14. Capital equipment manufacturers' turns are much lower—in the range of two to three. The PC industry has one of the highest turns, since it builds not to forecast, but only against actual orders.

In general, when turns fall, management needs to ask itself:

• Are we allowing so many customer changes that inventory is obsolete before it's even shipped?
• Is this a temporary blip due to revenue "lumpiness?"
• Are we taking a realistic view of bookings and revenue, or do we just believe our own "wishful thinking?"
• Is the manufacturing system breaking down in terms of cycle times, MRP, or customer changes?
• Are we adequately attacking—and reserving for—excess and obsolete parts?
• Do we fully understand the costs of complexity—i.e., product options—and immediate demand fulfillment?

—Taken from Basics of Finance for Manufacturing Professionals by J. David Viale, Center for Manufacturing Education, CFME Press.