Find slow movers and stop reordering them. Clear or return dead stock.
Order smaller quantities more often for items with steady demand (see the EOQ calculator).
Set reorder points per product instead of ordering on gut feel (see the reorder point calculator).
For goods with expiry dates, sell oldest batches first (FEFO) so stock doesn’t expire on the shelf.
Frequently asked questions
What is the inventory turnover formula?
Inventory turnover = cost of goods sold ÷ average inventory, where average inventory = (opening stock + closing stock) ÷ 2. With COGS of ₹60 lakh and average stock of ₹10 lakh, turnover is 6 times a year.
What is days of inventory?
Days of inventory (DIO) = days in the period ÷ turnover. A turnover of 6 a year means stock sits for about 365 ÷ 6 ≈ 61 days before it sells.
Is a higher inventory turnover better?
Usually. It means stock sells quickly and less cash is tied up. Too high can mean you are often out of stock. Compare against your own history and similar businesses rather than a universal number.
Why use cost of goods sold and not sales?
Stock is valued at cost, so dividing cost of goods sold by stock at cost compares like with like. Using sales (at selling price) inflates the ratio by your margin.
