Inventory-Turnover Analysis

Abstract

A key element of inventory management is a periodic inventory-turnover analysis, particularly among food-service operators with numerous and diverse menus that change frequently. Use of an "inventory turnover" statistic helps operators maximize the inventory investment, measures the efficiency of the inventory-management process, and uncovers problems such as slacking sales and employee theft. The measure proposed here is: food cost for the period divided by the period's average inventory value equals inventory turnover. Other ratios can be used, but all have some limitations. The inventory-turnover statistic is especially useful for comparing same-store activity, and can serve to compare similar operations within a given segment. If the inventory-turnover ratio is unstable or does not fall within a reasonable predetermined range, further investigation is warranted (to discover why sales may be slumping or to uncover theft, for example). Periodic inventory-turnover analysis provides operators with a tool for improving their inventory-management practices, especially when coupled with common precautions such as monitoring deliveries, dealing with preferred vendors, rotating stock, and keeping prices up to date.