You might ask why a pantry? Over the years many of my friends have asked me this same question. For me, my reasons haven’t changed over the years- for convenience, to save money, and be more self-reliant. You’ll understand when I tell you, during these 12 years we’ve moved around, and always lived on rural or remote land, at least 40 minutes away from a store. Try that some time with a house full of teenagers.
But I need to focus. There are quite a few little management secrets I could share. One of them is using the Pantry Inventory Turnover Rate. This may seem a little complicated, but it’s not. Walk with me and I’ll show you.
I find beginning pantry managers like to think of a pantry as a black box – food in on one side, and food out on the other. They want to manage the input on one end and the output on the other, but this has some flaws that will cost you time, money, and needless frustration.
The biggest issue that the inventory turnover helps resolve becomes clear when you try to forecast a budget for your pantry. The picture of a black box is not enough, you need to have a clear picture of what’s going on in the middle of that box, like playing ping pong, you need to see the opponent’s side so you can anticipate how fast and where the ball is going to come from.
The pantry inventory turnover measurement will help in your planning efforts. This turnover ratio will tell you how fast you typically use up a pantry item, identify which items are in more demand, and how often you need to restock each year. Let’s say you need to know how many tomatoes you need to bottle for the year. You guessed it; the pantry inventory turnover will show you what you need, how many tomatoes to buy or grow, how many bottles, and lids, and how much storage space is needed.
So, let’s get started.
KEY TAKEAWAYS OF TURNOVER RATES
- Inventory turnover measures how many times in a month or year a household needs to replace the inventory that it has consumed. As discussed earlier, calculating pantry inventory turnover can help pantry managers make better forecasts and decisions about securing new pantry items.
- A slow turnover implies lower demand and possible excess or spoiling inventory, while a faster ratio implies either high demand or insufficient inventory.
High volume, low margin pantry items—such as bread and eggs—tend to have the highest inventory turnover.
To compute inventory turnover, you want to take the cost of any inventory items consumed in the week, month, year, etc. and divide this cost by the average value of your inventory for that period. This average is found by just taking the beginning inventory and subtracting it from your ending inventory, then dividing by two. Average Value of Inventory = (Beginning Inventory – Ending Inventory)/2
Inventory turnover measures how fast a household consumes pantry inventory. A low turnover implies weak demand, possible excess inventory, or overstocking, which may indicate a problem with the items being offered or be a result of too little attractiveness. A quart jar of mashed-up beef stew could sit on a pantry shelf for a long time. A high ratio, on the other hand, implies either strong demand or insufficient inventory. The former is desirable while the latter could lead to lost opportunities, failure to save money or serve your household most efficiently.
Sometimes a low inventory turnover rate is a good thing, such as when prices are expected to rise (inventory pre-positioned to meet fast-rising demand) or when shortages are anticipated.
The speed at which a household consumes inventory is a critical measure of pantry performance. Pantry managers that move pantry inventory out faster tend to outperform. The longer an item is held, the higher its holding cost will be, and the fewer reasons household managers will have to return to the pantry for new items.
Inventory Turnover and Dead Stock
Inventory turnover is an especially important piece of data for maximizing efficiency in pantry management. Especially when managing perishable goods such as milk, eggs, and produce. An overabundance of jelly may lead to unused inventory, higher costs, and disappointing waste. Such unsold stock is known as obsolete inventory or dead stock.
Example of How to Use Inventory Turnover:
Assume a household has consumed $200 worth of food from the pantry last month, and you began the month with $290 of inventory, which includes some food that cost you $75 to bottle and purchase the items for. Your average inventory is ($290-$200)/2 = $45. Using this information, we can see that the household has an inventory turnover of $200 divided by $45 which is about 4.4, in other words, over a year your household tends to turn over its pantry inventory about 4.4 times.
Taking it a step further, dividing 365 days by the inventory turnover shows how many days on average it takes a household to consume its pantry inventory. In the case of the example household, it’s every 82.9 days.
What Is a Good Inventory Turnover?
What counts as a “good” pantry inventory turnover will depend on your household and its normal use of the pantry. As a rule, households stocking pantry items that are relatively inexpensive will tend to have higher inventory turnovers, whereas more expensive items—where family members usually take more time before making consuming an item—will tend to have lower inventory turnovers.
Is High Inventory Turnover Good or Bad?
Households will almost always aspire to have a high inventory turnover in the pantry. After all, a high inventory turnover reduces the amount of their food budget they have tied up in their panty inventory. Moreover, keeping a high inventory turnover reduces the risk that their inventory will become unusable due to spoilage.