What Is Inventory Turnover? Definition of Inventory Turnover, Inventory Turnover Meaning and Concept
Inventory rotation is a marketing practice and strategic direction that consists of the control of products from the logistics point, through the times per period of time that stocks are renewed .
The economics of the company and the theory of marketing place this concept among the basics when it comes to knowing and understanding business logistics and storage management for companies, which within their economic activity.
There is another way to understand this concept and through numbers. Technically, the inventory turnover shows the times that the firm invests obtaining stocks that will later be released through sale. And said investment will be recovered when its stock is depleted through its sales.
On the other hand, the organization used by each company regarding the exit priority of its products tends to be disparate, based on different criteria studied in the economy of the company and marketing, among which FIFO or LIFO stand out , for example.
Measurement and usefulness of inventory turnover
Companies use the value provided by the inventory turnover rate as a basic tool for managing their stocks. However, it is usually taken into account as an approximate and indicative indicator, since its valuations must be made taking into account external factors such as economic cycles, fashions,
With this ratio it is possible to measure the success of the products offered and their evolution. This is precisely the one with which each new measurement is compared (by means of the average inventory or average number of products in the warehouse) and thus be able to assess given a certain level of sales.
The calculation of the turnover rate takes into account the sales made in a period of time on the level of average stocks that the company has.
It is important to point out that sales are measured taking into account the cost price for the company, or what it has cost the company to have it in stock, and not the retail price.
As for this indicator, it is normal for it to range from 1 to 100, indicating low-level rotations to significant stock replacements, as in the case of supermarkets.
Different examples of inventory turnover
Usually the period included in the measurement of inventory rotation is usually a quarter, or a semester or a year (the most common case). However, in some sectors such as food, it usually includes less time due to the expiration of the products.
Other sectors, however, reflect lower levels of replacements per period due to their high costs, seasonality or economic capacity and consumer tastes. A clear example of this are the industries of jewelry, luxury, art...