Two performance indicators are regularly used to assess the quality of management of inventory: The inventory turnover rate and the average duration of storage.
The calculation of inventory turnover
Stock rotation determines the number of times the stock is completely renovated to achieve a turnover during a given period.
The calculation of inventory turnover occurs in two steps:
Step 1: Calculation of the average stock
Average stock = (start + end stock of inventory) ÷ 2. It can be calculated by value or quantity.
Example: If your stock at the beginning of the year is € 1,000 and the stock end of the year is 1500 €. Then your average annual stock will therefore be (1000 + 1500) ÷ 2 = € 1,250
Step 2: Calculate the rate of inventory turnover
We can calculate the inventory turnover on the basis of sale price or purchase price:
Inventory Turnover = purchase of goods sold ÷ average inventory cost (weighted average price).
Or: Inventory turnover = sales ÷ average inventory (selling price).
Example: If your sales HT over the year are: 5000 €. Then your turnover stocks will therefore: (5000 € ÷ € 1,250) = 4, which means that your stock has been renewed 4 times to make your sales.
The higher the turnover rate, the better the performance (my stock runs x times over the period).
The averaging duration of storage
The average duration of storage determines the average time between the moment you buy a product and when it is sold.
Average storage time = (average inventory / cost of annual purchases) x 360 days
Or: The average storage time = 360 days / Inventory turnover
Example: In our example, the average storage time = 360/4 = 80 days.
The stock is renewed here on average every 80 days.
The average length storage means indicates the number of days of storage of an article. We must ensure that this period is as short as possible or it does not stretch.
Stock It Easy manages the calculation of turnover rate and the average duration of storage, see the following article in the online help for more information on this feature.