Inventory Rotation Calculator for Supply Chain

What does the inventory turnover calculator measure?

Inventory turnover measures how many times a year a company sells and replenishes its entire stock. A company that rotates 10 times is converting its investment into cash 10 times a year. One that rotates 4 times has that capital fixed twice as long, with all the costs that this entails: financing, space, obsolescence, waste.

The number matters because inventory is not a passive asset. Every day that a product is in the warehouse without being sold has a price.

The formula that calculates inventory turnover

The inventory rotation formula has 3 components:

How to read the result of the inventory turnover calculator

• A high turnover is a good result. You can analyze your operation and see if it has any of these characteristics: a good demand forecast, fulfilled lead times, elimination of products with slow turnover.
• A low turnover can mean that there is inventory trapped in the warehouse, and an increasing risk of obsolescence. This can be due to poor demand forecasts, products without movement that no one decided to discontinue, or long lead times that force you to order more than necessary to cover them.
• However, there is one mistake that is often made: assuming that more turnover is always better. Excessively high turnover may indicate that the company is operating with such tight inventories that stockouts are frequent. Every stockout is a lost sale and, in many markets, a customer that never returns. The objective is not to maximize the index but to find the balance between availability and efficiency.