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Inventory turnover and carrying cost

Enter average inventory, annual usage and carrying costs to see how often stock turns, what it costs per year and how much cash comes out of inventory when coverage drops.

Pre-sizing and estimating tool: results do not replace design, calculations or reports signed by a licensed professional, nor verification against the applicable codes and standards.

Preliminary estimate
Inventory and usage
Carrying cost
Slow-moving stock
Target
Economic analysis
Calculate from history (paste from Excel)

Paste the inventory balance at the end of each month and, if available, each month’s usage at cost. Average inventory and annual usage go to the fields above.

See what was read
See what was read
—Annual inventory carrying cost
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Carrying cost breakdown

Each item per year, today and at the target days of supply.

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Annual cost and capital versus days of supply

Each day of supply removed frees capital and cuts annual cost.

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Project payback

Cash flow of the improvement: investment in year 0 and annual savings escalated at the rate entered, discounted at the MARR.

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The report gathers this page's inputs, results, equations, assumptions and references, with fields for project, engineer and revision. In the print dialog, choose Save as PDF.

Method, assumptions and references

Equations used

Turnover = annual COGS ÷ average inventory; days of supply = inventory ÷ (COGS ÷ days per year)
Carrying cost = inventory × (capital cost + insurance + losses) + storage proportional to inventory
Target inventory = COGS ÷ days × target coverage; capital freed = current − target

Assumptions and limits

  • Storage and handling scale with inventory; in practice part is fixed (space, staff) and only falls with layout changes.
  • Freed cash appears once; annual savings are only the reduction in carrying cost.

Standards and technical documents

  • Silver, E. A.; Pyke, D. F.; Thomas, D. J. Inventory and Production Management in Supply Chains, 4th ed. CRC, 2017
  • ASCM (APICS) Dictionary, 17th ed.: inventory turnover, carrying cost
  • Richardson, H. Transportation & Distribution: The true cost of inventory, 1995

U.S. regulations

  • ASC 330 (Inventory): lower of cost and net realizable value; write-downs of obsolete stock
  • IRC §471 and Treas. Reg. 1.471-2: inventory valuation for tax purposes

Frequently asked questions

How do I calculate inventory turnover?

Divide annual cost of goods sold (or materials used) by average inventory. COGS of $6 million with average inventory of $1.5 million gives 4 turns a year, or about 91 days of supply.

How much does it cost to carry inventory?

Usually 15% to 35% of value per year: capital cost is often the largest part, followed by shrinkage and obsolescence, storage and insurance.

What is the right days of supply?

It depends on supplier lead time, demand variability and service level. Use the safety stock calculator for each critical item and ABC analysis to prioritize.