Inventory Velocity

Inventory velocity is a metric that measures the number of times inventory is sold or used in a given period. It’s a key metric for businesses because it helps them understand how quickly they’re selling through their inventory and whether they need to adjust their production levels.

There are two main ways to calculate inventory velocity:

1) Average inventory turnover: This method simply takes the total cost of goods sold (COGS) for a period of time and divides it by the average inventory level during that same period. For example, if a company had $100,000 in COGS and an average inventory level of $50,000, its average inventory turnover would be 2 (100,000/50,000).

2) Days sales of inventory: This method calculates how many days it would take a company to sell through its entire inventory based on its current sales pace. To do this, you take the COGS for a specific period of time and divide it by the daily sales during that same period. For example, if a company had $100,000 in COGS and daily sales of $5,000, its days sales of inventory would be 20 (100,000/5,000).

Both methods can be helpful in measuring inventory velocity, but which one you use will depend on your business’s needs. If you’re trying to understand how quickly your inventory is moving so you can adjust your production levels accordingly.