What are the best tools and metrics to measure and improve inventory turnover and cycle time?

1 Inventory turnover ratio

The inventory turnover ratio is a formula used to calculate how many times you sold or used your inventory in a given period, usually a year. This is done by dividing the cost of goods sold (COGS) by the average inventory value. The higher the ratio, the less inventory is sitting idle, which can reduce storage, handling, and obsolescence costs. To improve your inventory turnover ratio, you can use lean tools such as Kanban, 5S, and Just-in-time (JIT). Kanban is a visual system that signals when to replenish inventory based on actual demand and consumption. 5S is a method that organizes your workspace and eliminates waste. Lastly, JIT is a strategy that aligns your production and supply chain processes with customer demand to minimize inventory levels and lead times.

2 Cycle time

Cycle time is the time it takes to complete a process or a task, from start to finish. It can be measured at different stages of your value stream, such as design, manufacturing, delivery, or service. A shorter cycle time means you can produce or deliver more units in less time, leading to greater throughput and customer satisfaction. To reduce cycle time, you can use lean tools such as value stream mapping which maps out the flow of materials and information from the customer to the supplier, kaizen which is a philosophy and practice involving continuous improvement of processes and performance based on data, feedback, and experimentation, and poka-yoke which is a technique that prevents or detects errors and defects in processes. All of these tools can help reduce rework, delays, and quality issues.

3 Inventory turnover days and cycle time days

Another way to measure and compare your inventory turnover and cycle time is to convert them into days. Inventory turnover days is the average number of days your inventory stays in your system before being sold or used. It is calculated by dividing 365 by the inventory turnover ratio. Cycle time days is the average number of days it takes to complete a process or a task. It is calculated by dividing the total time spent on the process or task by the number of units produced or delivered. These metrics can help you benchmark your performance against your industry standards or competitors, and identify gaps and opportunities for improvement.

4 Little's law

Little's law is a mathematical formula that relates inventory, throughput, and cycle time. It states that the average inventory in a system is equal to the product of the average throughput rate and the average cycle time. In other words, inventory = throughput x cycle time. This means that if you want to reduce your inventory, you can either increase your throughput or decrease your cycle time, or both. Little's law can help you understand the impact of your process changes on your inventory levels and performance.

5 Inventory turnover analysis and cycle time analysis

Inventory turnover analysis and cycle time analysis are two methods that can help you identify the root causes of your inventory and cycle time problems, and implement effective solutions. Inventory turnover analysis involves calculating and comparing the inventory turnover ratios of different product categories, locations, or suppliers, and finding out the reasons for the variations. Cycle time analysis involves measuring and comparing the cycle times of different processes, stages, or tasks, and finding out the sources of delays, bottlenecks, or waste. Both methods can help you prioritize your improvement actions and monitor your results.