inventory turns

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

OR
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.

Please see the category links on the left side to view various Supply Chain definitions.

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.
If you want to contact me, email me at: john@supplychainmetric.com

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For information on Inventory Turns, Fill Rate Measurement, Backorder Reporting or any other Supply Chain 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. All data listed here may be used as a general guide, but it's accuracy is not guaranteed. Please consult a qualified Supply Chain professional for more details on Supply Chain Measurements. Other Supply Chain Websites
This site is owned and maintained by Michelle Taras & John Taras CPIM, PMP

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VendorManagedInventory.com - information on Vendor Managed Inventory
InventoryTurns.com - additional information on how to calculate inventory turns or inventory turnover.
SupplyChainManagementNews.com - News stories about Supply Chain Management
SupplyChainDefinitions.com - various definitions of supply chain terms
SupplyChian.com - various supply chain info (yes, i know it's mis-spelled)
SupplyChainPurchasing - a new site Michelle is developing. All about Supply Chain Purchasing.
Inventory Definition - a basic overview of inventory terms.

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