Average annual inventory turns measures our supply chain efficiency – how often we sell through and replenish our inventory throughout the year.
Our 2012 target was to achieve an inventory turnover rate of 2.3. Because holding inventory is costly, higher turn rates are a good thing, and show we’re more efficient in managing our supply chain. At the same time, we need to balance this with ensuring that we have products available for members when they need them.
In 2012, we achieved an inventory turn rate of 2.12, below our target of 2.3. We’re not happy with this result, because it means that we overstocked on some products and had to put gear on clearance to make room for new products. This affected our margins, and ultimately the amount of money we were able to give to members in the form of patronage returns.
In 2012, we were able to sell through the majority of our overstocked inventory, and at year end we finished with an inventory balance that was close to our plan. We’re working to improve our supply chain efficiency, but will likely always be somewhat below industry average as we won’t compromise on product availability. We’re committed to including specialized products in our assortment that may not be in high demand across the country (e.g., avalanche airbags for backcountry recreation). While this may lower our inventory turns, we’re happy to make that trade-off.
Improving inventory and supply chain efficiency continues to be a priority project for 2013, and we have implemented projects to improve inventory management both in our stores and our supply chain. Our inventory turns target for 2013 is 2.26.