3. GMROII is a Retail Metric that measures the productivity and profitability of an element of the business Sales Inventory Gross Margin Maintain Margin (Gross Margin) Average On-Hand Inventory Cost GMROII (Gross Margin Return On Invested Inventory) Measures the amount of gross profit dollars generated on an annual basis for each dollar of inventory purchased = Source: MVI research and company reports See actual formula in Appendix
4. GMROII is a simple, yet powerful Metric INVENTORY COST OR INVESTMENT PROFIT OR RETURN ON INVESTMENT If you invest one dollar in inventory and you sell that inventory for $1.25, Then you have gained a return on investment of $0.25 or a 20% margin. After the end of one year you sell your inventory 20 times, each time making $0.25 for each dollar of inventory investment. Your return on one dollar of investment into inventory is 20 quarters or $5.00. Source: CCE Internal Training
5.
6.
7. The CSD category has traditionally out-performed other categories Apparel Sporting Toys Electronics CSDs Goods Turns 5.0 3.0 3.0 4.0 110 Margin 35 28 30 20 10 GMROII $2.70 $1.20 $1.30 $1.00 $12.00 Source: CCE North America - 2005
8.
9.
10.
11. GMROII in Action: How Wal*Mart is using GMROII to assess inventory performance Non Profit Zone Opportunity Zone Profit Zone GMROII = Margin % X Turnover rate Annual Inventory Turnover rate M A R G I N Source: Wal*Mart Mexico - 2007 Coke Zone GMROII > $5 GMROII < 1 = Loss
12.
13. Appendix 1) GMROII Formula GMROII tells you how much profit you get back at the end of one year for investing one dollar in inventory . GMROII (Gross Margin Return On Invested Inventory EXAMPLE: If an item is sold for $1.25 and the item cost the retailer $1.00, then the Gross Margin is 20%. 25-Cents is profit and $1.00 is cost. Yearly turns for this example are 52 times per year. GMROII = X INVENTORY TURNS (1YEAR) GM % 1 - GM % GMROII = X INVENTORY TURNS (1YEAR) GM % 1 - GM % X 52 20% 1 - 20% = = $13.00 What does $13.00 mean? For every dollar that is purchased of inventory the retailer will receive $13.00 in Gross Margin by the end of the year.
14. Appendix 2) GMROII Quadrant Sleepers High Margin Low Turns Price - Lower Prices Assortment - Add segments; reduce coverage percent Shelf Presentation - Reduce space Promotions - Increase frequency Product Supply - Reduce inventory Mid point: Average Questionables Low Margins Low Turns Price - Increase prices Assortment - Reduce segments; reduce coverage percent Shelf Presentation - Reduce space Promotions - Run off shelf Product Supply - Reduce cost, Reduce Inventory Winners High Margins High Turns Price - Maintain, check against competitors Assortment - Add segments increase percent coverage Shelf Presentation - Better location, more space Promotions - More frequency Product Supply - Increase Inventory, Reduce out-of-stocks Net Margin / Turns TURNS Opportunities Low Margins High Turns Price - Review segment mix, Increase prices Assortment - Increase percent coverage Shelf Presentation - More space for high turn SKU’s Less space for lower turning SKU’s Promotions - Maintain, check promoted segments Product Supply - Increase inventory, reduce out-of-stocks Net Margin Percentage
15. Appendix 2) GMROII Quadrant Example Source: ABC Study Source: ABC Study Brazil GMROII by Package
Editor's Notes
EXAMPLE: How do you calculate inventory turns? Calculating turns is accomplished by dividing the year’s case sales by the sellable inventory. EXAMPLE: If the beverage aisle is 250 cases and the average number of cases on display for an average week is 100 cases and the cold vault holds 10 cases, then total sellable inventory is 360 cases. If the store sells 18,750 cases per year, then the turns equal 18,750/360 or 52. This means that all of the inventory has been sold 52 times during the year. To change the dialogue with the retailer we must change the dialogue internally within our division GROSS MARGIN -Include CMA and DPC if possible TURNS -How do you calculate? GMROII -Dollar bill and quarter example Cash Flow (Interest) -Dollar bill example Cash Float (Cash) -Dollar bill example
![GMROII 101 ,[object Object],[object Object],[object Object]](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)