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
