Which metric is commonly used to determine how well inventory is managed?

• A. Inventory Turnover Ratio (ITOR)
• B. Days on Hand
• C. Days of Supply
• D. E-Procurement

Answer: (A)

Measuring how efficiently inventory is managed relies on how quickly stock moves through the system. The inventory turnover ratio is the standard metric for this because it directly links what you sell (cost of goods sold) to what you hold (average inventory) over a period. It answers how many times inventory cycles through in that timeframe. A higher turnover means you’re selling through stock faster, which typically reduces holding costs and the risk of obsolescence while still meeting demand. The calculation is cost of goods sold divided by average inventory, and using average inventory helps smooth out seasonal fluctuations.

Days on hand and days of supply describe how long the current stock would last, which is useful for planning, but they measure duration rather than the overall velocity of inventory. E-Procurement isn’t a metric at all; it’s a purchasing method. So the turnover ratio best captures how well inventory is managed because it reflects the rate at which inventory is converted into sales.