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.
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 time frame. Stock turn helps inventory teams analyse how well they are managing their stock levels. When the stock turn rate is high this generally means a company is efficient at managing its inventory. When stock turnover is low this usually highlights that replenishment processes are less effective.
There are a number of ways to calculate stock turn, 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:
Whilst it depends on the industry, typically companies seek to have a high stock turn rate. This is because the higher the stock turn rate, 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 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.
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: