What's Inside / The operation / S7 Products / Inventory / Returns

Section S7 · The operation

Inventory turnover, stockouts and returns, read SKU by SKU in margin.

A catalogue-wide inventory turnover figure tells you how hard your stock works on average, not which SKU is about to run out, which has gone dead, or which hands its margin back as refunds. Section S7 reads all three per product, in contribution margin.

The short answer

Read inventory turnover per SKU, not as one catalogue average, and read it next to days of cover and return cost. Blufire's Products / Inventory / Returns section does that on your Shopify data and ends in a margin-weighted buy list: what to reorder, what to clear and what to fix.

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S7 Products / Inventory / Returns · Affinity & bundles

Real product screen, shown on sample data.

Section S7

Which SKUs earn, which bleed, and what to buy next.

Products / Inventory / Returns is the section for the person who signs the purchase order. It takes every SKU, prices it in CM1 rather than revenue, and asks three questions of it: will it run out, will it sit, and will it come back. Every number drills straight to a buy list.

The screen shown is Affinity & Bundle Strategy. It clusters the products that pull each other into baskets, lists each pair with its lift, co-orders and joint CM1, and marks a pair bundle-worthy only when the two are jointly CM1-positive. Pairs have to clear a gate of at least 30 co-orders and 1.5x lift, and the thresholds are not lowered to make the graph look busier.

See the operation group→

ABC x XYZ portfolio matrixPlaces every SKU by the value it earns and how steady its demand is, so you can see which products deserve the working capital at all.

Stockout Risk & Days-of-CoverFlags what runs out and when, so you reorder before the stockout rather than after it.

Overstock & Dead StockFlags the capital going stale on the shelf before it becomes a write-down.

Reorder & Open-to-BuyTurns both risks into one margin-weighted buy list.

Refund economics and Return ReasonsReads returns as cohort timing and dollars, and shows why they happen, product by product.

Refund-Risk ScoringFlags the orders and customers most likely to come back before that margin is counted as kept.

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Questions it answers

The stock questions that decide the quarter.

What do I reorder before it stocks out?Days of cover per SKU, against the rate it is actually selling. The full answer is on reorder or clear.
What do I clear before it goes dead?Overstock and dead stock flagged while there is still time to sell it at a margin.
What are returns really costing us?Refunds read in dollars and by reason, not as one flat rate. See the cost of returns.
Which products belong together?Pairs that co-occur in baskets and still earn joint CM1 once bundled.

The maths

One catalogue average, two very different SKUs.

Inventory turnover is landed COGS divided by average inventory, both at cost. Here is a two-SKU store over one year.

Worked example / demonstrative numbers

Fast SKU: A$240,000 landed COGS ÷ A$40,000 average inventory6.0x

Slow SKU: A$60,000 landed COGS ÷ A$60,000 average inventory1.0x

Catalogue: A$300,000 ÷ A$100,0003.0x

Slow SKU's share of the inventory capital (A$60,000 ÷ A$100,000)60%

Slow SKU's share of COGS sold (A$60,000 ÷ A$300,000)20%

Slow SKU closing stock A$68,000 ÷ (A$60,000 ÷ 365 days sold at cost)≈414 days of cover

A 3.0x turn looks respectable. Underneath it, 60% of the cash in stock sits in a product that moves 20% of the volume and holds more than a year of cover. That is the SKU the buy list should stop reordering and start clearing.

Turnover is speed only. A slow SKU on a rich margin can still earn its shelf space, which is why the Financial Models section tracks GMROI on the same data. Check what refunds do to the margin side in the returns impact calculator.

Who uses it

Built for whoever writes the purchase order.

Operations and buying teams live in the reorder view: days of cover, the stockout flags and the open-to-buy that turns them into quantities. The reorder point stops being a number in someone's head and becomes a line on a list.

Finance reads how much working capital is parked in stock that is not moving, and how much margin returns take back after the sale. Founders use the ABC x XYZ matrix to decide which lines deserve more depth and which should be cut.

Marketing uses the bundle pairs to see which products already sell together at a healthy joint margin. Every section reads the same CM1 math as Unit Economics, so a SKU that looks strong here cannot look weak there.

What changes

From a stock report to a buy list.

TodayWith Blufire

One inventory turnover number for the whole catalogue.

Turnover, days of cover and margin per SKU, with the laggards named.

Stockouts are found when the product page says sold out.

Stockout Risk flags the SKU while there is still time to reorder.

Dead stock is found at the end-of-year count.

Overstock & Dead Stock flags the capital going stale while it can still be cleared.

Returns are a single rate in the Shopify report.

Refund economics, return reasons and refund risk, product by product, in dollars.

Bundles are picked on gut feel.

Pairs are bundled only when they clear the co-order gate and stay jointly CM1-positive.

FAQ

Questions operators ask.

Divide cost of goods sold for the period by average inventory, with both sides at cost. Average inventory is beginning plus ending inventory divided by two. A store with A$600,000 of annual COGS and A$120,000 of average stock turns 5.0 times a year. Dividing revenue by inventory inflates the ratio by your margin, so keep both sides at cost.

There is no honest universal target. The right turn depends on your category, supplier lead times and minimum order quantities, your margin and your cash position. Consumables turn faster than considered purchases, and a high-margin line can justify a slower turn. Compare each SKU against your own history and against the margin it earns, not against a quoted average.

A store-wide turnover averages fast and slow products together, so a SKU sitting on a year of stock can hide behind a best seller. Per SKU, the slow movers show up as the ones holding a large share of inventory capital for a small share of sales. That is the list you clear from and stop reordering.

Inventory turnover looks back: how many times average stock sold through over a period, usually a year, at cost. Days of cover looks forward: how many days current stock lasts at the current sales rate, usually per SKU in units. Turnover judges the inventory position; days of cover tells you when to reorder.

A return reverses a sale that was already counted, adds handling and shipping cost, and can put stock back on the shelf in a state you cannot resell at full price. Reading returns by product and by reason, in dollars, shows which SKUs earn their margin and which give it back after the order is counted.

Keep going

The questions it answers.

Problem 13What do I reorder before it stocks out, and what do I clear before it goes dead?Read it →Problem 14What are returns really costing us, and which orders will come back?Read it →Section S11Planning & ForecastingRead it →Section S12Financial ModelsRead it →Section S13ExperimentsRead it →The operationAll of the operationRead it →

The vocabulary

Inventory turnover Days of cover Reorder point Dead stock ABC analysis Return rate GMROI Days inventory outstanding Returns impact calculator→