Inventory Turns - Supply Chain Metric

Inventory Turns - Supply Chain Metric

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Inventory Turns (Inventory Turnover): The number of times that your inventory cycles or turns over per year. It is one of the  most commonly used Supply Chain Metrics.
Calculation: A frequently used method is to divide the Annual Cost of Sales by the Average Inventory Level.
Example: Cost of Sales = $36,000,000. Average Inventory = $6,000,000. 
             $36,000,000 / $6,000,000 = 6 Inventory Turns

 Inventory Turns can be a moving number. 
Example: Rolling 12 Month Cost of Sales = $16,000,000. Current Inventory = $4,000,000
            $16,000,000 / $4,000,000 = 4 Inventory Turns 
Projected Inventory Turns: Divide the "Total Cost of 12 Month Sales Plan" by the "Total Cost of Goal Inventory"
Example: The Total Cost of 12 Month Sales Plan is $40,000,000. Total Cost of Goal Inventory = $8,000,000
            $40,000,000 / $8,000,000 = 5 Projected Turns
Turns can be viewed using Cost Value, Retail Value, or even in Units. Just make sure that you're using the same Unit of Measure in both the Numerator and the Denominator.
 Although results vary by industry, typical manufacturing companies may have 6-8 inventory turns per year. High volume/low margin companies (like grocery stores) may have 12 or more inventory turns per year or more. It is common for a company to target slowly increasing it's turns year after year.
Consult a qualified benchmarking company to help you set your target for your inventory turns.
Our goal is to guide companies that are looking to optimize their Supply Chain. Originally, we intended on answering questions about Inventory Control, Sourcing, Manufacturing, Distribution and Supply Chain Metrics. However, we currently do not have the resources to answer individual questions. 

For information on Inventory Turns, Fill Rate Measurement, Backorder Reporting or any other Logistics Supply Chain Management Measurements (metric), click on the links to the left. The text that appears on this website is the opinion of the webmaster. Metrics may or may not be uniform across all industries. We recommend contacting a qualified Supply Chain consultant before implementing a measurement program.
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