#Inventory turns kpi how to

You can't let them sit on warehouse shelves for long as they can get expired.

‍ Less wastage, better brand image Perishable products have expiration dates, such as food and beverage (F&B) and pharmaceuticals.

This way, you can keep costs down and achieve higher profits. How? By selling and replenishing your inventory quickly. For instance, with a higher inventory turnover ratio, you can store 3,000 units in a warehouse which can store 1,000 units at a time. The slower you'll clear your inventory, the higher these costs. As when inventory stays in your warehouse, it doesn't generate revenue but incurs costs- higher maintenance and carrying costs. More revenue, low costs A higher inventory turnover ratio means you're selling more products and generating greater revenue in a given period of time.‍ Benefits of increasing inventory turnover ratio Evaluate the risk of inventory becoming obsolete or expired.Prevent high maintenance and carrying costs.Predict and manage accurate inventory levels.Analyse blockage of working capital (inventory).Determine in how much time inventory is sold over a period.There are many reasons for businesses to calculate inventory turnover ratio, such as: ‍ ‍ Why should businesses calculate inventory turnover ratio? Moreover, a high inventory turnover ratio could also result in a loss of sales, as there could be insufficient inventory to meet customer demand. These heavy discounts negatively impact your revenue as you have already incurred lots of costs on your inventory, including carrying costs and freight charges. It could be due to offering heavy discounts in an attempt to clear inventory quickly because of poor inventory management, such as overstocking. However, there are instances when a high inventory turnover ratio may not be good for your business. On the other hand, a low inventory turnover ratio indicates weaker sales and declining demand for your products. Note: A higher inventory turnover ratio means you are selling goods quickly, and there is considerable demand for your products. This means that this company has sold its entire inventory in 42 days. Therefore, its inventory days on hand (DOH) = (1 ÷ 8.74) x 365 = 41. It is calculated by taking the inverse of the inventory turnover ratio multiplied by 365. Now, let's see how many days it took for inventory to turn into sales, i.e.

#Inventory turns kpi how to

Let's see how to calculate Inventory turnover ratio with an example,Ī company had sales of INR 51,44,000 in the year 2019, the inventory in the beginning of the year was 4,38,000, and the closing inventory is 4,43,000 with an annual COGS of 38,53,000. The following illustration shows the inventory turnover ratio formula: It also enables you to pinpoint weaknesses in your inventory management, marketing campaigns, and merchandising techniques. In simple terms, it helps you understand how well are you turning your inventory into sales. Inventory turnover ratio is an ecommerce metric used to measure the number of times inventory is sold completely in a given time period. In this ecommerce metric refresher, you will learn what is inventory turnover ratio, how to calculate inventory turnover ratio, why should businesses calculate inventory turnover ratio, benefits of increasing inventory turnover ratio, and the strategies to increase inventory turnover ratio. Similarly, ecommerce metrics are the KPIs that can help online businesses evaluate their performance, set benchmarks, and take corrective measures to steer the business in the right direction. Key Performance Indicators (KPIs) are the metrics used to measure the performance of a business.