Using stock turn rate to optimise your inventory management

For many businesses looking to improve their inventory management, a critical KPI is stock turn rate. Stock turn rate is a relatively simple KPI to collect and analyse and can be very useful as a benchmark for optimising inventory management efficiencies.

What is stock turn rate?

Stock turn rate, also known as stock turnover or inventory turnover, is a ratio that shows how often stock is completely sold, used or replaced over a specified period. Stock turn helps inventory teams analyse how well they manage their stock levels. When the stock turn rate is high, a company generally manages its inventory efficiently. When stock turnover is low, this usually highlights ineffective replenishment processes.

What’s the formula for calculating stock turn rate?

inventory turnover calculation

There are several ways to calculate stock turn. In this example, the cost of goods sold is used as the basis for calculating stock turn:

To find the average inventory, the most basic formula is:

Calculating inventory turnover

What is a good stock turn rate?

While it depends on the industry, companies typically seek a high stock turn rate. This is because the higher the stock turn rate, the less capital is invested in inventory. A high stock turn also means that SKUs are being regularly sold or used, which typically means that forecasting is accurate.

However, it’s important to consider other KPIs when analysing stock turn. For example, if you have a high stock turn with a low customer service level, it could mean that you’re not holding enough stock to cover your demand. In this case, it would be better to invest in more SKUs to bring your stock turn down and boost your customer service level.

If you’re carrying too many SKUs, it’s important to increase your stock turn so that you don’t tie up money in inventory you don’t need and waste it on carrying costs. One way to increase stock turnover can be increased is by adjusting your reorder points or reorder quantities. For more details on this and other stock turn tips, read our blog on improving your inventory turnover.

Stock turn KPI

The stock turn KPI helps businesses benchmark how well they manage their inventory, order fulfilment and warehouse operations. When you combine it with other KPIs, such as service level or sales value, you can paint a comprehensive picture of how well your inventory management processes are operating and gain insight into how you can improve your business.

To learn more about what KPIs you can measure and track in your warehouse to improve your inventory management, read our whitepaper:

If you’d like to find out how EazyStock inventory optimisation software can improve your stock turn, contact us on 0121 312 2992 or request a demo.

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