What is the rotation index

The turnover index measures the speed with which goods move through warehouses and calculates all sales of a product and its average stock over a given period of time.

In practice, it is a metric that expresses the ratio between sales and average monthly inventories, all in terms of units.

The turnover index is an important element to ensure that a company has financial balance, especially for those operating in the sector of GDO, or retail distribution.

Calculation of the turnover index

As we have already mentioned, the turnover index expresses how many times material rotates in inventory over a certain period of time.

But how is this metric calculated?

Let's take an example: if a turnover index in one year is equal to 3, it means that the stock in the warehouse turns over three times in 12 months, so there's a first load and unload, then a second, and finally a third.

A high number of turnovers means that the inventory in the warehouse rotates many times or even more quickly compared to others.

To calculate the turnover index, sales of a product during a certain period of time are compared with the average stock in the warehouse for the same period.

Therefore, the average inventory index is obtained by dividing 365 (days per year) by the turnover index.

For instance: let's assume that an item has an average storage time of 365/7.2, thus an annual turnover of 7.2 equals 51 days.

In conclusion, once the turnover index has been calculated, it is important to manage inventories day by day to forecast production costs.

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