![]() As you might expect, a reduction in days inventory typically represents a performance improvement. Once you’ve arrived at your inventory turn ratio, it’s merely one small step further to understand how many days it takes to turn over (sell) your entire inventory.ĭays inventory is another crucial indicator of inventory management performance and highlights the speed at which your company is turning goods into cash. That’s because the faster you sell your inventory, the lower your company’s holding costs such as utilities, rent, insurance, shrinkage, and other related expenditure.Īssuming the price for which you sell your products remains consistent, reduced holding costs driven by increasing inventory turns, will bring you greater profits.Ģ: Days Inventory or Days Sales of Inventory In most cases, you would want to see this ratio increase over time, since generally, a high ratio bodes well for profitability. Therefore, Company A’s inventory turn ratio is 6.76. At the start of the year, inventory value was $47 million and at the end of the year was $46.2 million. Here’s an example of the total calculation of inventory turns:Ĭompany A has COGS of $315 million for the year 2020. To calculate the average inventory, you must take the value of inventory held at the start of the measurement period, the value of inventory held at the end of the period, and add them together-then divide the total by two.įinally, you will get the inventory turn ratio by taking the COGS and dividing it by the average inventory. You will probably get the former value from your company’s income statement. You need to know the cost of goods sold (COGS) for the period over which you want to measure inventory turns, and you need to know the average inventory held for that same measurement period, which would typically be a month or a year. ![]() Before you can calculate inventory turns, though, there are two things you first need to know. The inventory turns KPI is the metric that provides this information. With the ability to provide valuable clues about what you’re doing right and where you can improve your inventory management, each one deserves its designation as a key performance indicator.Įvery company that depends on selling a physical product needs to know how fast the product moves. The one thing they all have in common is that, under the right circumstances, they are more than merely valuable metrics. The following KPIs comprise those commonly used across all warehouse operation types, along with some that are less ubiquitous but which your business might benefit from monitoring. You will also understand their notable benefits to the inventory management discipline.ġ0 Invaluable KPIs to Track Inventory Management Performance ![]() In addition, those articles inevitably stimulate readers to post questions, which, over time, we try to answer in detail by creating new blog posts to address them.Īs we are often asked about KPIs for inventory management, that’s what we’re going to focus on in this particular post.Īfter reading, you will be better informed about the most appropriate KPIs for IM and know the more commonly used ones. Every article we publish covering logistics and supply chain KPIs piques our website visitors’ interest and receives a wealth of positive feedback.
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