![]() ![]() It’s an inventory strategy used by manufacturers that mass-produce goods every day. Large enterprises can afford to maintain a high average inventory because they sell a lot and have the funds to offset the required costs. This ratio tells you how many times you fully replenish your stock in a period.įor example, a company might have a vast average inventory but relatively low sales.Ĭan it justify having such large inventory levels if it turns over its inventory only once or twice a year? Well, the answer depends on several factors. It tells you how much you sell as a ratio to what you keep in stock. Inventory turnover ratio is a crucial measure of efficiency, as it calculates how much a business sells as a percentage of its total inventory. Why is inventory turnover ratio important? This article helps you learn how to increase inventory turnover, understand what is a good inventory turnover ratio for manufacturing companies, and how to apply it to your business. Your optimal turn rate depends on the size of your business and what you manufacture. Therefore, you need to know how to calculate your inventory turnover. These questions go to the heart of inventory management and production flow. Am I keeping too much inventory at one time?.Knowing about your stock turns helps you to make decisions about your business. ![]() It is a critical business performance metric, yet many manufacturers neglect this. Your inventory turnover ratio is the amount you sell in relation to your average inventory. It’s also important to consider the rate at which inventory arrives and leaves your shop floor. Inventory management is not only about the materials and goods you have at any time. As a seller of physical goods, you must understand how to manage your inventory for your business to keep growing.
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