Inventory Finance - Supply Chain Metric

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Financial Inventory Metrics
GMROI (Gross Margin Return on Inventory)
GMROI = (Unit Selling Price of an Item - Unit Inventory Value of an Item) X Annual Demand for the item
 Average Inventory Value of the product.
Notes:
Unit Inventory Value tells you what it costs you to make the product.
The Unit Selling Price - Unit Inventory Value tells you the margin.
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Inventory Carrying Rate:
 This can best be explained by the example below....

1. Add up your annual Inventory Costs:
Example:
$800k =  Storage
$400k = Handling
$600k = Obsolescence
$800k = Damage
$600k = Administrative
$200k = Loss (pilferage etc)
$3,400k Total
2. Divide the Inventory Costs by the Average Inventory Value:
Example:
                $3,400k /  $34,000k = 10%
3. Add up your:
 9% = Opportunity Cost of Capital (the return you could reasonably expect if you used the money elsewhere)
 4% = Insurance
 6% = Taxes
19%
4.  Add your percentages:   10% + 19% = 29%
 Your Inventory Carrying Rate = 29%
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Inventory Carrying Costs:
 Inventory Carrying Cost = Inventory Carrying Rate (see above) X Average Inventory Value
Example:  $9,860,000 =  29%  X  $34,000,000 
 
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