Introduction to the Inventory Turnover KPI
The Inventory Turnover KPI measures how many times a company sells and replaces its inventory within a specific period. It’s a crucial metric for retailers, manufacturers, and wholesalers because it reveals inventory efficiency, demand accuracy, and overall supply-chain performance.
What Is Inventory Turnover?
Inventory Turnover shows how quickly stock moves through the business. It is calculated using:
Inventory Turnover = Cost of Goods Sold (COGS) ÷ Average Inventory
A high turnover indicates strong demand, efficient inventory management, and minimal overstocking. A low turnover may signal slow-moving inventory, excess stock, poor forecasting, or declining sales.
Why This KPI Matters
Inventory Turnover provides essential insight into operational and financial performance. It helps companies understand:
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How efficiently inventory is being managed
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Cash flow tied up in stock
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Supply-chain and procurement effectiveness
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Product demand and sales performance
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Risks of spoilage, obsolescence, or storage costs
Optimizing turnover helps reduce costs, improve liquidity, and maintain healthier stock levels.
How to Use This KPI Effectively
Organizations typically analyze turnover by product category, season, supplier, or location. When paired with KPIs like Days Inventory Outstanding (DIO), Gross Margin, Stockout Rate, and Order Accuracy, Inventory Turnover becomes a powerful tool for improving purchasing strategies, forecasting, and overall operational efficiency.