The calculation is very simple: simply divide the average stock per product by the sales, multiplying by the period in days (here we are talking about values over 1 year).īe careful, to calculate the Stock Turnover on a consolidated basis (by brand, category, etc.), do not make the average of the stock turnovers by brand (because there would be no weighting on the stock value). You can download the complete Excel below: Download the Excel file Inventory Turnover in days: Excel calculation We will now calculate these indicators in Excel with concrete examples. The frequency of stock turnover is nevertheless exceptional for this type of business. The main reason is that Apple ships its stock by plane, directly from China to its stores, without any intermediate stock, and therefore benefits from very short supply times. This means that, on average, Apple’s inventory is sold out 8 times faster over a year than Samsung. Applying the formula over 365 days, we get 73 days of inventory turnover for Samsung against only 9 days for Apple. Apple has almost 6 times less inventory in value than Samsung, and its turnover is also higher. Let’s take the example of Apple and Samsung. If you are calculating a global indicator, it is better to take a long enough period, I recommend 1 year or 365 days.Īgain, keep the same valuation between Inventory and Sales (purchase price or sales price). Period: the number of days in the period covered.Sales or Consumption: the sales made over that same period.I prefer to measure the Inventory Turnover in days, I find it more meaningful. Be careful, however, to use the same valuation between the two variables. Inventory and Sales can be valued at the purchase price or possibly sales price (I do not recommend using quantities). You can use shipments or consumption of components or raw materials. Average Inventory Value: the average inventory available over a period.“How many times does my stock turn over?” In other words, it answers the following question : The inventory turnover ratio is used to assess if the stock is excessive compared to the sales.
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The Inventory turnover ratio can be measured at any point in the chain (and also globally) Inventory Turnover meaning and formulas Inventory Turnover ratio formula Whether it is stocked items or goods in transit, it is possible to measure the corresponding stock turnover at the SKU level or globally. This KPI can be tracked at each step of the chain: from the raw material to the factory, the warehouse, the transportation network, and the distribution network.
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So, to lower your stocks and improve your cash flow, you need good inventory management. For example, You have more money to invest in new products, better marketing processes… If the investments are a success, you will have more sales and more profits: more free cash flow. Less inventory means more cash available (free cash flow) for investments. Here, we focus on the bottom right of the pyramid: The on-hand inventory is directly related to the amount of cash available.Īs stated by Warren Buffet, “Cash is King”: improving your inventory management strategy is critical for the profitability of your company. Profitability is achieved if we keep a high level of Service, while minimizing Costs and Inventory. If you want to have a profitable Supply Chain, you need to track 3 main pillars: Service, Costs, and Inventory. You can also download the Excel used in the video and this article here : Why is the Inventory Turn KPI so important? What is the inventory turnover ratio? Why is this KPI important? What is the formula?Ĭheck my video below with a step-by-step tutorial. And I am always surprised to see so many companies not tracking correctly this crucial indicator, or even not tracking it at all. I’ve been using this KPI for the last 15 years as a demand planner, Supply Chain Manager, S&OP Manager, Supply Chain Director, and Consultant. In my opinion, it is one of the most important KPIs in Supply Chain.