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Inventory Turnover Rate is a pivotal KPI for businesses looking to optimize their stock levels and understand sales efficiency. A significant indicator of supply chain effectiveness, this rate helps companies balance inventory investment with customer demand. Delve into the Inventory Turnover Rate to glean actionable insights for strategic inventory decisions and enhanced profitability.
The Inventory Turnover Rate measures how frequently a company's inventory is sold and replenished over a certain period. It reflects how well a company manages its inventory in relation to its sales.
A higher Inventory Turnover Rate typically indicates efficient inventory use and robust sales, whereas a lower rate may point to overstocking, stock obsolescence, or poor sales performance.
The rate is calculated by dividing the cost of goods sold (COGS) by the average inventory:
Inventory Turnover Rate = COGS / Average Inventory
Benchmarks for optimal turnover rates vary by industry and product type. Companies should analyze the historical performance and industry average to determine their target rates.
By investing effort into improving the Inventory Turnover Rate, businesses can ensure their inventory practices support sustainable sales and growth objectives while meeting customer needs more effectively.
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