What key performance indicator (KPI) measures how well inventory levels are managed?

The inventory turnover ratio is a vital key performance indicator that specifically measures how efficiently inventory levels are managed within an organization. It calculates how many times inventory is sold and replaced over a specific period, typically a year. A higher inventory turnover ratio indicates that a company is selling its inventory quickly and effectively, suggesting strong demand and effective inventory management practices. Conversely, a lower ratio may signal excess inventory, indicating potential issues with overstocking or underperforming sales.

This KPI provides insights into operational efficiency and can be a useful metric for assessing the overall effectiveness of inventory management strategies. By monitoring the inventory turnover ratio, companies can better understand their stock levels relative to sales and make informed decisions regarding purchasing, production, and sales forecasting.