Definition of stock turnover rate and goods rotation: fast and slow movers

The inventory turnover rate, also known as the inventory turnover rate or inventory turnover coefficient, expresses how often an average stock level is completely removed and replaced in a specific period (usually a financial year). As a key figure, it can be applied to both the entire warehouse and parts of the warehouse, as well as to individual products; in this case, however, it is referred to as stock rotation instead of inventory turnover.

For most companies, the inventory turnover rate is the most important key figure in inventory management, as it is very meaningful in terms of the duration of capital commitment. The reciprocal of the inventory turnover rate is therefore the inventory range. Goods lying in the warehouse are tied up capital (keyword: tied-up capital); the stock is virtually waiting to be removed, i.e. sold or further processed. This therefore applies to finished products as well as semi-finished products, raw materials, operating materials and auxiliary materials.

The higher the inventory turnover rate, the more profitable the business is, as the capital tied up in stock is reduced for the same (annual) turnover. Capital tied up in the warehouse cannot be used for other purposes, and this incurs costs for the warehousing itself as well as opportunity costs

Definition of goods rotation

Goods rotation refers to the rate at which goods are sold. Depending on the industry, this is calculated per year, month, week or day. The higher the sales of a product, the higher the goods rotation. In warehouse logistics , an ABC analysis is often carried out based on the goods rotation, which defines in descending classes whether an item has high or low sales. The term “fast-moving items” has become established for A-items and the term “slow-moving items” for C-items. The differentiation is made both for the entire range of a warehouse and for individual product groups.

Calculating the turnover rate

The inventory turnover rate is calculated by dividing the stock level (turnover in euros) of a specific period by the average stock level (in euros).

The average stock level is calculated as follows (calculation period 1 year):

  • As a less precise variant: opening stock closing stock divided by 2
  • As a more precise variant: opening stock is added to twelve monthly stocks of a year and then divided by 13.

Goods rotation: fast and slow movers

Goods rotation refers to the speed at which goods are sold. Depending on the industry, this is calculated per year, month, week or day. The higher the sales of a product, the higher the goods rotation. In warehouse logistics, an ABC analysis is often carried out based on the goods rotation, which defines in descending classes whether an article has high or low sales. The term “fast-moving items” has become established for A-items and the term “slow-moving items” for C-items. The differentiation is made both for the entire range of a warehouse and for individual product groups.

It must be emphasized that these are primarily status descriptions that can change at any time. For example, in 2020, the C article medical face mask suddenly became an A product. With the emergence of the coronavirus pandemic, this item, which had previously been sold very sporadically, became the most sought-after commodity of the moment.

What are fast-moving items?

Fast-moving items are goods that spend little time in a warehouse and leave it again quickly. In German-speaking countries, however, the English term FMCG, short for fast-moving consumer goods, is also being used more and more frequently. These goods are characterized by the fact that large quantities are handled in a short period of time. Fast-moving consumer goods include everyday goods that are bought quickly and without major investment. As a rule, they are not stored for long, so they hardly take up any storage space and incur only low storage costs. This characteristic is particularly pronounced for products that quickly lose their topicality or shelf life, as is the case with print products or foodstuffs, for example.

What are slow-moving items?

Slow-moving items (also known colloquially as bums) or slow-moving products are goods that have a low sales speed. In German-speaking countries, however, the English term SMCG, short for slow-moving consumer goods, is also being used more and more frequently. They usually remain in the warehouse for a longer period of time and block storage space. Slow-moving consumer goods are usually goods for which demand is low or very seasonal. However, an incorrect price or inadequate product placement is often the cause of poor sales speed. As slow-moving items take up storage capacity, they cause storage costs. It should therefore be regularly questioned whether these products are still needed in the range.

Benefits of the turnover rate/goods rotation key figure

The turnover rate or rotation of goods is used as an example:

  • For purchasing optimization and corresponding purchasing strategies
  • For comparing stores, articles and article groups in terms of their cost-effectiveness
  • To identify the need for optimization in the ordering system as well as in the product range composition
  • As an orientation aid for (price) calculation
  • For warehouse optimization (better accessibility of fast-moving items for picking)

The inventory turnover rate can be improved (i.e. increased) by shortening order cycles and discontinuing slow-moving items; also by increasingly switching to just-in-time delivery. The corresponding key figures differ depending on the industry; however, the importance of these indicators is demonstrated by the fact that continuous optimization can have a positive effect on a company’s rating.

Summary

The inventory turnover rate or goods rotation is particularly relevant in retail companies and industrial companies with correspondingly high inventory management. The key figure expresses how often an average stock of a product, a product group or an entire warehouse is completely removed and replaced in a certain period of time. The lower the inventory turnover rate, the more capital is tied up and is not available for other purposes.

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