The Center for Inventory Management assembles related financial items such as net sales and inventories, and expresses the relationship in the form of a ratio. It is expressed as a percentage of inventory to net sales. Please note that the ratios are based on total inventories on hand at the end of each quarter and the net sales for that quarter. To express this ratio in terms of annual inventory turns, divide 100 by the percentage. However, a direct comparison of a company's inventory ratios with those of another company or even the industry ratios published by the Center may not be too meaningful.
Accounting practices vary widely from company to company.
Additionally, there may be differences which preclude a valid comparison. These include such factors as management policies on customer service levels, type of manufacturing processes, degree of vertical integration, procurement and production lead-times, diversity of products and methods of distribution. If there is a reasonable similarity of these factors between a company and its competitors, the comparison of inventory turns can be of significant value. Strive for a level of zero inventories Produce items at the rate required by the customer. Eliminate all unnecessary lead-times.