Measuring Inventory Productivity – The Ratios

These are simple ratios that can be used to determine how well your practice manages stock.

• Gross Profit

  Sales – COGS (Cost of goods sold)

• Cost of Goods Sold (COGS)

  Traditionally this value is represented by Opening stock + purchases – closing stock.

  In VisionVPM this automatically calculated as: Average Cost X Qty Sold in the period.

  You should first recalculate the Cost of Sales Journal, to ensure this value is up to date.

  Go to: Stock menu > Update Stock On Hand > Create COS Journals.

• Average Stock

  Opening + Closing Stock / 2

  This figure is obtained from the Stock Valuation report.

  Go to: Stock module > Reports menu > Stock Levels.

• Stock turn – how many times does the entire inventory sell per year.

  COGS/Average Stock OR

  Annual sales/Average monthly inventory at retail value

• Days Stock on Hand – inverse to stock turn, how many days stock is on hand.

  Average Stock/COGS X 365days

• Stock Growth – how much the stockholding has grown in a given period.

  If sales rose by 10% and stock grew by 20%, this reduces your stock turns, and may lead to overstocking.

  Closing Stock – Opening Stock/Opening Stock x 100%

• Gross Margin Return on Investment GMROI – how much do you make per $1 inventory invested – should be over $1.

  Profit/Average Stock

• Return per Square Metre

  Profit from OTC merchandise/Area allocated to Merchandising.

An average practice, as reported by the FMRC Benchmarking Reports 1999 and 2005, has:

• Stock turn = 6.4 (1999 data);
• Days of stock on hand = 57 (1999 data);
• Stock purchases at 28.9% of turnover (an estimate of COGS);
• Average margin (Gross Profit) on all drugs and OTC = 35.93% (1999 data); and
• Contribution to income (Sales) from drugs and OTC = 30%.

Table 1 – Practices grouped as indicated FMRC Report 1999.