Calculate inventory turnover and costs
Inventory Turnover = Cost of Goods Sold ÷ Average Inventory. If COGS is ₹50 lakh and average inventory is ₹10 lakh, turnover = 5. This means inventory is sold and replaced 5 times yearly.
Varies by industry: Grocery 12-15, Apparel 4-6, Electronics 6-8, Furniture 2-4. Higher isn't always better—too high might mean stockouts. Compare against industry benchmarks.
DSI = 365 ÷ Inventory Turnover. With turnover of 5, DSI = 73 days. This means average inventory sits for 73 days before being sold. Lower DSI indicates faster-moving inventory.
EOQ = √(2 × Annual Demand × Order Cost ÷ Holding Cost per Unit). It minimizes total inventory costs by balancing ordering and holding costs. Use for recurring inventory purchases.
Safety Stock = (Max Daily Sales × Max Lead Time) - (Average Daily Sales × Average Lead Time). This buffer protects against demand variability and supplier delays.
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