Inventory Turnover Optimization

Inventory Turnover = COGS / Average Inventory. Measures how many times you sold and replaced inventory in a period. Higher = more efficient. Industry varies: grocery 12-15x, electronics 6-8x, fashion 4-6x, jewelry 1-2x. Below industry average ties up cash unnecessarily.

DIO = (Average Inventory / COGS) × 365. Inverse of inventory turnover. Example: $100K inventory, $1.2M COGS → DIO = 30 days. Pair with days payable outstanding (DPO) and days sales outstanding (DSO) for cash conversion cycle.

Lower = better cash flow but stockout risk. Higher = better fulfillment but ties up capital. Optimize via ABC analysis (top 20% items get high stock, bottom 80% lean), demand forecasting, and safety stock for variance. JIT works only with reliable suppliers.

It depends on your sector. Grocery and food retail can turn 20x or more, while industrial manufacturers often sit between 4x and 8x. The most useful comparison is against your industry average and against your own historical trend rather than a single universal target.

Cost of capital, storage, insurance, obsolescence, and shrinkage. Depending on the type of product, the real range usually falls between 20% and 30%. Tune the percentage to your own situation to get accurate figures.

Yes, as long as you improve forecasting accuracy at the same time. Cutting safety stock without better forecasts simply trades carrying cost for lost sales. Implementing ABC segmentation and replenishment driven by real demand is usually the safest path.