Which key performance indicator (KPI) is used to measure inventory turnover?

The inventory turnover ratio is a key performance indicator (KPI) that measures the rate at which inventory is sold and replaced over a specific period. By calculating this ratio, businesses can assess how efficiently they are managing their inventory. A higher inventory turnover ratio indicates that a company is selling goods quickly and effectively managing their stock levels, which is crucial for optimizing working capital and reducing holding costs.

This KPI is particularly important in supply chain management as it directly impacts various operational decisions, including purchasing, warehouse management, and sales strategies. Inventory turnover also helps businesses identify trends in sales, demand forecasting, and the overall effectiveness of their inventory management practices.

Focus on the inventory turnover ratio allows companies to achieve a balance between having enough products available to meet customer demand while minimizing excess inventory that can incur additional costs. This understanding can lead to improved operational efficiency and ultimately better financial performance.