Inventory turnover

Inventory turnover measures how many times inventory is fully replaced during a period, normally a year.

It is the most direct way to know whether the capital invested in goods is working or sitting still in the rack.

How it is calculated

Turnover = cost of goods sold in the period / average inventory in the period

The result reads as times per year. A turnover of 6 means inventory was replaced six times — that is, each item spent an average of two months in the warehouse.

Converting to days is usually more useful when talking to operations:

Days of inventory = 365 / turnover

What counts as "good" turnover

It depends entirely on the sector. A fresh food distributor and an industrial spare parts manufacturer live on incomparable scales. The useful figure is not the absolute number but its trend and its comparison against the same period last year.

Why it matters for warehousing

Because turnover determines how much space you need per unit of sales. Low turnover means more pallet positions occupied for longer by the same volume of business.

When turnover is low and seasonal, a pallet-position model — billed on real occupancy — usually beats carrying fixed area all year.

The average's trap

A healthy overall turnover can hide that 20% of your SKUs move very fast while the remaining 80% barely move at all. It is worth calculating by product family before drawing conclusions.