Inventory Turnover (Work-In-Process Only)

Inventory Turnover (Work-In-Process Only)

KPI Details

Inventory Turnover (Work-In-Process Only) measures the rate at which a company's inventory of work-in-process (WIP) materials move on to completion and are replaced (i.e., "turned") over a given period of time. A relatively high value for this KPI indicates that the company's inventory of WIP materials is turned several times throughout the measurement period, but may also be a leading indicator of potential for backorders and/or a lack of cost avoidance within the procurement function (i.e., purchasing in bulk to replenish inventory of WIP materials, when possible, to reduce procurement costs). On the other hand, a relatively low value may indicate that the organization's purchasing/procurement, sales and related forecasting functions are not working in concert to determine the appropriate inventory levels of WIP materials based on forecasted demand.

KPI Definition

An indication of how many times a company's inventory of work-in-process (WIP) materials move to completion and are replaced over a set period of time. Can be calculated by dividing the cost of goods sold (COGS) by the average dollar value of WIP materials on hand during a defined selling period (monthly, quarterly, annually).

KPI Best Practices

• Effective collaboration between demand forecasting and materials procurement functions
• High performance in Machine Uptime to minimize stagnant WIP inventory
• Plan for seasonal changes in demandmonths prior to the expected fluctuation

KPI Calculation Instructions Inventory Turnover (Work-In-Process Only)?

Two variables are used to calculate this KPI: (1) the total Cost of Goods Sold for the period being examined, and (2) the average dollar amount of work-in-process (WIP) materials on hand over the same period of time. The total Cost of Good Sold (COGS) can typically be found on quarterly and annual filings for any publicly traded organization (or within monthly P&L or income statements for a private organization). COGS includes the cost of materials sold, as well as any direct labor costs related to the manufacturing, sales and distribution of the goods. The average dollar amount of WIP materials on-hand can be calculated by taking the sum of the WIP materials value on hand at the beginning and end of the measurement period and dividing that value by 2. WIP materials should be defined as the materials and partially completed products which are in various stages of the production process. Do not include raw materials or finished products at the beginning and end of the production cycle, respectively, when calculating WIP.

KPI Formula :

Total Cost of Goods Sold / ((Inventory Value of WIP at Start of Measurement Period + Inventory Value of WIP at End of Measurement Period) / 2)