What are Inventory Turns?

Efficiently predicting and acting on stock fluctuations.

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Inventory turns, also known as Inventory turnover, are a ratio showing how many times a company has sold and replaced inventory during a given period, typically a year. It is important to understand the efficiency and effectiveness of inventory management.   

Inventory turns are a way for companies to calculate how many days it will take to sell their inventory.

Inventory turns can show how well a company is managing its storage. They provide insights into sales efficiency, inventory management, and overall business performance. Based on this information, companies can make better decisions.  

The speed at which a company can rotate its inventory is a crucial performance indicator. Retailers who quickly convert inventory into sales generally outperform their peers. Holding inventory too long can lead to higher holding costs and point to the likelihood of customers returning to make another purchase.  

While inventory turns may not provide substantial insights on their own, when analyzed alongside other data and compared with industry benchmarks, they become a valuable metric.  

The formula for calculating inventory turnover is:   

(Cost of Goods Sold (COGS)) / (Average Inventory)  

Cost of Goods Sold (COGS): These are the direct costs associated with the production of the goods sold.  

When calculating inventory turns, the aim is typically to achieve the highest possible number.

Inventory Turns and VMI

By utilising a VMI solution, companies supplying into retailers can ensure that they stay ahead of demand and ensure that their products are always in the right place and at the right time, and as a result, make sure they maximize their potential sales.  

A key benefit of VMI is improved inventory turns, which means fewer product returns to a supplier, leading to increased efficiency and reduced costs. 

Key Value Points

  • Inventory turns, also referred to as inventory turnover, is a ratio that indicates how many times a company sells and replenishes its inventory over a specified period, usually a year.  
  • Inventory turns help companies gauge their sales efficiency, manage storage effectively, and assess overall business performance.