What is Inventory Turnover?

Inventory turnover varies dramatically by industry. Grocery stores might turn inventory 15-20 times per year (perishable goods move quickly), while jewelers might turn inventory 1-2 times (high-value items sell slowly). Comparing turnover within an industry reveals operational efficiency differences between competitors.

Low inventory turnover signals potential problems: excess stock, obsolete products, weak demand, or poor purchasing decisions. The costs of holding inventory include warehousing, insurance, capital tied up, spoilage, and obsolescence. These carrying costs typically run 20-30% of inventory value annually.

In case interviews, inventory turnover is relevant for retail, manufacturing, and supply chain cases. If a retailer's inventory turnover has declined from 8x to 5x, investigate why: has assortment expanded too broadly? Are markdowns being delayed? Is the buying team over-ordering? Each root cause has a different solution. Days Inventory Outstanding (365 / Inventory Turnover) converts the ratio to a more intuitive metric.