Inventory Turnover Analysis: What to Order and What to Remove

Product turnover is a key indicator of assortment management effectiveness. Proper analysis helps determine which items are profitable and which ones are tying up capital and taking up warehouse space. Understanding the sales velocity of each product category allows you to optimize purchasing, minimize storage costs, and increase business profitability.

Formulas for calculating turnover

The turnover ratio is calculated using the formula: Coborach = Cost of goods sold / Average inventory Average inventory is defined as (Opening Inventory + Closing Inventory) / 2. Turnover period is expressed in days: Turnover = Number of days in the period / Koborach For example, with a cost of sales of €50,000 and an average inventory of €10,000, the ratio will be 5 and the turnover period will be 73 days (365/5).

Key performance metrics

ROI of inventory measures the return on investment: (Sales Profit / Average Inventory Cost) x 100% The inventory level in days of sales indicates how many days of current sales the inventory will last. The standard for everyday products is 30-45 days, and for seasonal products, 60-90 days. The proportion of obsolete inventory should not exceed 5-8% of the total. Regular monitoring of these indicators identifies problem areas before cash flow gaps arise.

ABC/XYZ assortment analysis

More details about ABC profitability analysis Read our guide. ABC classifies products by their contribution to revenue: A — 80% of sales (20% of items), B — 15% of sales (30% of items), C — 5% of sales (50% of items). XYZ assesses demand stability: X — stable (variation up to 10%), Y — moderate (10-25%), Z — unstable (more than 25%). The combination yields 9 segments. AX products require maximum availability and frequent purchases. CZ products are candidates for discontinuation. The matrix helps personalize the strategy for each group.

Working with slow moving goods

Slow-moving items are items with a turnover rate of less than 2-3 times per year or a turnover period of more than 120-180 days. Causes include: inflated purchases, seasonality, outdated design, and uncompetitive pricing. Activation strategies include price promotions (15-30% discount), cross-selling with popular items, bonuses with purchase, repackaging, or rebranding. If sales have not increased within 60 days of active measures, consider liquidation.

Strategies for liquidation of illiquid assets

A final sale with a 40-70% discount minimizes losses. Returns to the supplier are possible by agreement (usually with a 20-30% discount). Bundling sets with popular items disguises unsold items. Charitable donations provide tax savings and a PR boost. Disposal is a last resort for damaged goods. Automatic price list processing by Elbuz helps monitor turnover in real time and receive alerts about the formation of illiquid assets.

Automated monitoring

Manually calculating turnover for hundreds of SKUs takes hours and is prone to errors. Modern systems automatically calculate all indicators, create ABC/XYZ matrices, predict the risk of dead stock, and recommend actions. Setting up automatic reports with a preset frequency ensures proactive management. Integration with accounting systems ensures data is up-to-date without double entry.

Conclusion

Systematic inventory turnover analysis is the foundation of profitable inventory management. Using formulas, ABC/XYZ classification, and timely handling of slow-moving items improves capital efficiency by 20-40%. Integrating inventory turnover analysis into the overall system inventory and product range management ensures comprehensive control and informed decision-making on procurement.