In our financial statements, inventory appears on the asset column. However, too much inventory actually blocks flow and sales. So how much inventory is really required? The lowest amount of inventory that can bring in satisfied customers.
The way to know if your definition of ‘the lowest amount’ is to compare yourself with other industry peers on the parameter of how many times can you rotate your stock. This parameter is called as Inventory turn and is measured as Cost of Goods Sold (in a period of time) divided by the Average Inventory held during that period of time.
Just compare yourself with other similar players on Inventory Turns to understand what level of improvement is possible in the short term.
