Set optical sights on inventory turns

April 15, 2011
Arthur De Gennaro

Measure your inventory turns monthly.

Key Points

Inventory as cash

I learned a lot by watching and listening to Dan. I learned that inventory is not just merchandise; it's cash-hard-earned investment dollars. Those investment dollars are hard to come by in a large company, so the decision to invest them in inventory had to be justified constantly.

Inventory turns

Dan's performance was measured in a number of ways. One way to measure how hard-invested inventory dollars are working is to measure the number of times a year the inventory sells through. This is commonly referred to as "inventory turns." It is defined as the number of times an inventory is sold in a year.

I like to compute this number every month. I use the month-end inventory value figure, which gives me a reading on that month's performance. I can graph that performance.