Inventory to Sales Ratio
Measure the amount of inventory you carry compared to the number of sales orders being fulfilled.
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What is Inventory to Sales Ratio?
Inventory to Sales Ratio measures the amount of inventory you carry compared to the number of sales orders being fulfilled. A lower ratio means you're converting inventory into sales efficiently; a higher ratio signals excess stock or weakening demand.
How to calculate Inventory to Sales Ratio
The formula is:
Inventory to Sales Ratio = Inventory Level / Net Sales
Inventory to Sales Ratio is a useful barometer for your organization's performance and a strong indicator of prevailing economic conditions. This metric is closely tied to your inventory turnover ratio and, when tracked together, speaks to the financial stability of your organization.
The cost of carrying inventory means you want to sell stock 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 per year 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 declining Inventory to Sales Ratio.
Monitoring supply chain KPIs on a dashboard
Once you've established benchmarks and targets for Inventory to Sales Ratio, set up processes to track this alongside other supply chain KPIs.
A well-designed supply chain dashboard consolidates data from multiple sources into a single, easy-to-read view. That gives decision-makers a clear picture of supply chain performance and surfaces areas that need attention before they become problems.
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