What is the stock turnover rate?
Inventory turnover (Inventory Turnover) is the number of times the assets in the enterprise ' s inventory are rotated over a period of time. It is a comprehensive indicator of the efficiency of inventory operations at all stages of the enterprise ' s production operations and directly reflects the health of the enterprise ' s acquisition, sale and inventory management.
Four core formulas for inventory turnover
- Average inventory = (open inventory + end inventory) / 2
- Inventory turnover rate (several) = Cost of sales (COGS) / Average inventory
- Stock turnover days = number of days of statistical cycle / stock turnover
- Stock available (Days of Supplement) = stock at end of period / Average daily sales
Why focus on the days of turnover?
1. Liquidity early warning: The shorter the number of days of working capital, which means that the funds are fast to return. If the turnaround days are exceptionally longer, they may presage the de-sale of products or over-purchase.
2. Reduced holding costsInventory is not just a payment for goods, but also includes storage fees, insurance premiums, wear and tear, and the risk of price reductions due to obsolescence.
3. Optimization of procurement plans• The procurement manager may determine with precision the timing of the next order (Reorder Point) by the average daily sales and the number of days available.
How can inventory turnover be improved?
Introduction of ABC Classification• Categorize inventories into A (high-value low-frequency), B (medium), C (low-value high-frequency). The fine-tuned management of category A items has reduced the backlog.
Use JIT (time-on-time) mode• Reduced storage time by working with suppliers to obtain the goods to be stored when production or sales so require.
Clean up demurrage stocksRegularly clear long-standing stocks through discounts, tied sales or promotion activities, releasing locked operating funds.