![]() But the higher the T/E Index, the better!Ī similar measurement to the Turn/Earn Index is Gross Margin Return on Investment (GMROI). a vendor line turning six times annually and earning an average 20% margin). Your T/E target should normally be at least 120 (e.g. On the other hand, the stock of a product with an average margin of 20% has to turnover six times in order to achieve the same 120 T/E Index. We get the same return on investment value if we turn the inventory of an item only twice but make an average gross margin of 60% on every sale: Say, for example, you turn over inventory of an item four times a year and earn an average 30% gross margin on each sale of the product. It highlights situations where high margins can compensate for low inventory turns. It is calculated by multiplying inventory turns by the gross margin percentage. The Turn/Earn Index will help you balance turnover and profits. Many surplus houses justify keeping items in their warehouse for years because they bought the material for pennies on the dollar and will eventually sell some of it for a premium. If a company enjoys high gross margins, it can be successful with lower inventory turns. But should turnover be the only inventory metric analyzed on a regular basis? Many companies view inventory turnover as their primary measurement of inventory performance. Last month we looked at how to calculate inventory turnover.
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