Inventory to Sales Ratio

Overview

The Inventory to Sales Ratio metric measures the amount of inventory you are carrying compared to the number of sales orders being fulfilled. Calculate inventory to sales using the following formula:

(Inventory value $) ÷ (Sales value $)

Inventory to sales is useful as a barometer for the performance of your organization and is a strong indicator of prevailing economic conditions, and your ability to weather unexpected storms. This metric is closely tied to your inventory turnover ratio and, when taken together, speak to the financial stability of your organization. It's important to note that the cost of carrying inventory means you want to sell your inventory as quickly as possible. Use the Cash-to-Cash Cycle Time formula to calculate how fast you receive payment for your inventory on average.

Key terms

• Inventory turns: The number of times a years all inventory is sold.
• Cost of carry: Expenses associated with storing inventory, such as leasing, climate control, and administrative costs.

Success indicators

• A low or dropping inventory to sales ratio.

Monitoring Supply Chain KPIs on a Dashboard

Once you have established benchmarks and targets for Inventory to Sales Ratio, you’ll want to establish processes for monitoring this and other supply chain KPIs. Dashboards can be critical in this regard. Read more