Turns and days on hand.
Use it to see where cash sits in stock. Enter cost of goods sold and average inventory by category, and it gives turns and days on hand against your target.
Use the same dollar basis for both numbers. Paste three columns from Excel.
Turns = annual COGS ÷ average inventory. Days on hand = 365 ÷ turns. Categories above target are flagged amber.
Inventory turns show how many times your stock is used and replaced in a year: a key measure of working capital.
Turns = annual cost of goods sold ÷ average inventory value. Days of inventory = 365 ÷ turns.
Cost of goods sold is $3.6M and average inventory is $900k: 4 turns, or about 91 days of stock. Reducing inventory to $600k at the same sales gives 6 turns and releases $300k of cash.
It varies widely: high-mix manufacturers may see 4 to 8, lean operations 10 or more, and grocery retail much higher.
Reduce batch sizes and lead times, use kanban, clear obsolete stock and improve forecast accuracy.
The number of days current stock would last at the average rate of use: 365 divided by turns.