Using the Stock Turn KPI to Optimise your Inventory Management
- The dilemma of too much inventory management data
- What’s important and what’s optional?
- What’s the formula for calculating stock turn?
- What is a good stock turn rate?
- Stock turn KPI
The dilemma of too much inventory management data
Measuring inventory Key Performance Indicators (KPIs) is imperative to control your inventory and warehouse performance, but often companies end up collecting more data than they actually need. Instead of focusing on using data to benefit operational performance, the task of data collecting and processing takes over, becoming another distraction and hindrance to achieving your ultimate goals.
Today, comprehensive data collection is easier than ever before, with technology such as EPOS systems in retail outlets and RFID tags in warehouses. However, these advancements arguably promote the obsession to collect and process more data than is necessary. The result is a wealth of KPI dashboards cluttered with unused data and incomprehensible reports. Companies therefore need to identify and prioritise inventory KPIs that are truly important to make business improvements, over those which are only marginally relevant.
What’s important and what’s optional?
Every company will tailor its data strategy to its own operational processes, so the optimal setup will change from company to company. Even within the same supply chain, different companies will track different data sets and use different parameters. It’s therefore important that every stakeholder in the supply chain understands and interprets the data in the same way.
For many businesses looking to improve their inventory management, a critical KPI is stock turn. Stock turn 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?
Stock turn (also called inventory turnover) shows how often the stock of a certain SKU is completely sold, used or replaced in a warehouse, during a specified time frame. Stock turn is important because it helps inventory management teams analyse how well they are managing their stock levels. When stock turn is high this generally means a company is efficient at managing its inventory. When stock turn is low this usually highlights that replenishment processes are less effective.
What’s the formula for calculating stock turn?
There are a number of ways to calculate stock turn (inventory turnover), here’s a quick summary. 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:
What is a good stock turn rate?
Whilst it depends on the industry, typically companies seek to have a high stock turn. This is because the higher the stock turn, the less capital there 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 keep other KPIs in mind when analysing stock turn. For example, if you have a high stock turn but also 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.
For companies 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 your turnover rate 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 rate.
Stock turn KPI
The stock turn KPI helps businesses benchmark how well they are managing their inventory, order fulfillment and warehouse operations. When you combine it with other KPIs, such as service level or sales value, you can paint a full 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: