There is no one magic number for a healthy inventory turnover ratio. To properly determine your inventory turnover, you also need to make sure that your inventory counts are accurate. Inventory turnover ratio is often used in tandem with metrics like day sales of inventory (DSI) which measures the average time it takes for inventory to be converted into a sale. Product businesses measure inventory turnover using the inventory turnover ratio to gauge the efficiency of their supply chain and warehousing processes and the level of demand for their products. An inventory turnover ratio of 2, for instance, indicates that you sold and replenished twice the amount of inventory you stored. Inventory turnover is the rate at which a company’s inventory is sold and then replenished. Increase Inventory Turnover by Streamlining Last Mile Delivery What Is Inventory Turnover? To put this vital metric to good use, you don’t just need to know how to calculate inventory turnover rate-you need to know how to improve it.Ħ Ways to Improve Your Inventory Turnover Ratio An unhealthy ratio, just like a high temperature, is a surefire sign of a problem.īut identifying the existence of a problem is only half the battle. Calculating your inventory turnover ratio is akin to a doctor taking a patient’s temperature. It factors in not just how much inventory your company sells but also your supply chain efficiency, cash flow, profitability, and the effectiveness of your inventory control and management efforts. Inventory turnover ratio is the business metric that tells you how healthy your product business is.
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