Inventory turnover calculation: bu ne anlama geliyor
Inventory turnover shows how many times stock is sold and replaced in a period.
Inventory turnover = Cost of Goods Sold / Average Inventory Value
It is calculated on cost, not revenue. Using revenue mixes margin into the ratio and the number comes out higher than it is.
Averaging opening and closing stock is common but weak; a monthly average is far more accurate because it captures seasonal swings.
What the total conceals
Suppose a retailer’s annual turnover is 6 — reasonable for the sector. Broken down by product the picture can be: 20% of items turning at 15 and constantly out of stock, 30% turning at 1.5 and tying up capital.
While the headline number says “healthy”, you have two problems at once: lost sales and dead stock. Aggregation averages them into invisibility.
When turnover alone misleads
High is not always good. Very high turnover can be a symptom of inadequate safety stock. It has to be read alongside the stock-out rate.
Low is not always bad. Spare parts, long-lead raw materials and deliberately pre-built seasonal stock turn slowly by design.
Three metrics that belong together
Never report turnover on its own:
– Stock-out rate — if turnover is high, is this the price?
– Ageing analysis — share of stock older than 90 days
– GMROI (gross profit / average inventory cost) — turnover ignores margin; GMROI does not
Expected ranges by sector
“Good” varies enormously:
– Fresh food retail: 40-100
– General retail: 6-12
– Automotive spare parts: 3-6
– Industrial manufacturing (raw materials): 8-15
– Luxury goods: 2-4
Optimising towards a target from a different sector is meaningless. Comparisons belong between similar business models.
The wrong way to improve it
The fastest way is to cut stock, and it is also the most dangerous. Turnover rises immediately; the effect of stock-outs shows up weeks later as lost sales, and never appears in the turnover report at all.
Healthy improvement comes from forecast accuracy: holding the same service level with less stock. That raises turnover without raising stock-outs.
Tracking by product group
A practical rule: report turnover across no more than 10-15 product groups. Fewer conceals the problem; more becomes unreadable.
For each group, place turnover, stock-out rate and the share of 90+ day stock side by side. Those three say what one number cannot.
Turnover rising while the business worsens
Turnover is a ratio, and a ratio rises when the denominator falls. Reducing stock while holding sales improves it; beginning to stock out and losing sales sometimes improves it too.
The second case looks identical to the first in a report. The only way to distinguish them is to read turnover alongside availability: if the ratio is rising while service level falls, that is lost sales rather than improvement.
Which average is the average stock
Most systems take the mean of opening and closing stock. On a seasonal item that number bears no relation to what was actually held — stock that peaks in October and drains by December appears, from two endpoints, never to have existed.
Using a weekly average changes the calculation materially, and the data is already there.
What the category average conceals
In a category whose overall turnover looks healthy, half the products may be moving quickly and the other half not at all. The average hides both.
Looking at the distribution — how many products have sat for more than six months — is far more actionable than the category figure, and is usually where nobody looks.
Where to start
Pick one category, list the items that have not moved in six months, and ask one question of each: why is this still in the range.
Most answers are that nobody decided. The fastest intervention on turnover is usually not modelling; it is reading that list once.