We Ranked Almost 70 Sectors from Largest Increase in Turns Since 2013 to Largest Decrease in this Key Metric

Over the past two weeks, as he does every year, SCDigest Editor Dan Gilmore has used two of First Thoughts columns to review inventory performance by US companies.

Supply Chain Digest Says... 27 sectors had increases in turns since 2013. That leaves 39 sectors with flat or declning turns over the past four years. What do you say? Click here to send us your comments Click here to see reader feedback

That effort includes the hard work of placing companies into one of almost 70 different industry sectors - a more difficult task than you might think - grabbing data from financial statements such as as the income statement and balance sheet, then putting that data into a spreasheet for analysis.

Again this year, SCDigest calculated both inventory turns and Days Inventory Outstanding (DIO) for 554 companies, and then for those nearly 70 sectors.

Inventory turns is calculated by diving full year cost of goods sold (COGS) by year end inventory levels. With the turns numbers, DIO can be calculated by dividing 365 (number of days in a year) by inventory turns.

So, as used as an example by Gilmore in is columns, industrial giant 3M had inventory turns of 4.4 in 2016, which then translates into a DIO of 82.1 days.

DIO is sort of the reverse of inventory turns, in that a higher DIO, all things being equal, means poorer inventory management performance, while a lower number signals improvement. (See Supply Chain Inventory Performance 2017 and Supply Chain Inventory Performance 2017 Part 2.)

Across the 554 companies we annualized, average inventory turns in 2016 were 8.94. That compares with 8.48 in 2013 - or an improvement of about 5% over the last four years. That's actually pretty good - but many companies and sectors went nowhere or backwards since 2013.

And as Gilmore noted in his first column on this topic, the US inventory to sale ratio, which measures the amount of inventory being held versus one month's worth of sales across the economy, have largely been on the rise since 2012, though down a bit here in 2017. Still, with a ratio of 1.38 in June overall inventories are up about 11% from the 1.25 ratio seen at the start of 2012.

(See More Below)

In his second column last week, Gilmore provided a chart showing all nearly 70 sectors, ranked from best to worse in terms of inventory turns. That chart also showed the change (plus or minus) in 2016 versus 2013 levels, and how the turns number for 2016 compared to DIO.

This week, we take that same chart, but instead sort by the change in turns, from biggest increase (good) to the largest decrease (not good). That chart is below:

The top rated sector, on-line retails, is actually a bit of an anomaly, driven in a category with just four companies by a tremendous increase in turns by on-line furniture retailer Wayfair. Amazon, as a note, had turns of 7.7 in 2016, up a bit from 7.3 in 2013.

27 sectors had increases in turns since 2013. That leaves 39 sectors with flat or declining turns over the past four years.

Surprising? We're not sure, but there is little evidence inventory performance is improving. Have we hit a wall?

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