Operations
Inventory turnover
How many times stock is sold and replaced in a year.
Facts checked against sources onWhat does Inventory turnover mean?
Inventory turnover is cost of goods sold divided by average inventory. COGS of 12 million and average inventory of 2 million give a turnover of 6, which means stock sits for about two months on average (12 months ÷ 6). Higher turnover ties up less cash in working capital.
Where does it come up in case interview prep?
- Supply chains explainedLesson in How industries work: the toolkit
- Inventory and the cost of holding itLesson in Sourcing, trade and supply risk
- Industry primers: retail, consumer goods, banking, telecomLesson in Business basics for non-business learners
- Working capital in days: receivables, inventory, payables and the cash conversion cycleLesson in Reading a business through its numbers: the three statements, cash and value
- Lean basics as economics: waste, flow, and the hidden cost of inventoryLesson in Making operations better, and planning for what can go wrong
- Store economics: the numbers that decide profitLesson in Retail
- Luxury and fashion economics: channels, markdowns, and currencyLesson in Luxury and fashion
- Industrial economics and operations: installed base, OEE and make or buyLesson in Industrial manufacturing, machinery and aerospace
Related terms
- Working capitalCash tied up in running the business day to day.
- Little's lawItems in a system = arrival rate × time each item spends in it.
- BottleneckThe slowest step, which limits the output of the whole process.
- Capacity utilizationActual output as a share of the most that could be produced.
- Landed costThe full cost of getting a product to your door, not just its purchase price.
- Cash conversion cycle (CCC)How many days cash is tied up between paying suppliers and collecting from customers.
- Service level (fill rate and OTIF)How reliably a supplier delivers what was ordered, measured by fill rate and on time in full.
- Bullwhip effectSmall changes in shopper demand grow into large swings in orders further up the supply chain.
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