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4.1.23.2
(07-01-2007)
Turnover Rates
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Turnover Rates quantify the amount of time expected to close an audit based on the recent cycle times for the prior twelve
months. Turnover rates should be computed separately for each activity code for IC cases. The turnover rate is determined
by the following formula: (Cycle Days/30 (days)) = Turnover Rate in Months.
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To determine the annual Turnover Rate, divide the Turnover Rate in Months by 12.
Example: 180 cycle days/30 days = 6 months
The turnover rate is 6 months
The annual turnover is .5
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As an alternative, the turnover rate can be computed by dividing the number of return closures by the average work-in-process
Example: 1000 Return Closures/500 Work In Process Returns = 2
The turnover rate is 2 returns per year.
To express the turnover rate in terms of months, divide 12 by the turnover rate.
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Turnover rates can be expressed either in terms of:
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the length of time required for a given return to be completed.
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Or, the number of times inventory turns over in a year.
Example: Cycle time is 540 Days
540 days/30 (days)/12(months) = 1.5 Turnover rate (years per return)
The inverse is also true:
1/540/30(days)/12(months) = .66 (returns per year)
4.1.23.2.1
(07-01-2007)
Base Inventory Analysis
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Base inventory enables the PSP to adjust inventory levels to meet the workplan. Once you have determined the projected level
of work-in-process, you can monitor the inventory to establish and/or maintain the required inventory level.
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The concept of base inventory includes delivery of returns from start to finish. That is from status 12 to closing (status
80 or above). Likewise, work-in-process is defined to include status 12 through 59, with a few exceptions as presented. See Exhibit 4.1.23-1. An alternative would be to monitor only status 12 starts and closures (status 12 through 19).
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Since there is substantial variation in cycle times among the various activity codes LMSB typically examines, a separate computation
must be performed for each activity code. Due to changing cycle times, base inventory must be recomputed on a regular basis,
typically monthly, using updated 12-month averages.
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As a result of the lengthy turnover rates characteristic of most LMSB activity codes, you typically will have significant
difficulty influencing return accomplishments once a fiscal year has begun. Therefore it is critical that base inventory be
computed during the planning process. As soon as a draft plan is received from Headquarters (Operations Support), perform
a base inventory computation to identify activity codes where inventory does not match needs. This process may impact your
response to the draft plan, and may influence the types of returns delivered to the field from status 08 inventory.
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In order to compute the target current open inventory, divide the workplan target returns by the average inventory turnover
rate (returns per year). For example, if the workplan calls for 100 returns and the average turnover rate is .66 returns per
year for that activity code, then there should be 151 returns currently open (100/.66 = 151).
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Similar computations can assist with determining the correct inventory level to meet the workplan DESYs
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See Exhibit 4.1.23-1. for an example of an electronic spreadsheet base inventory analysis
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