What does inventory turnover indicate in supply chain management?

Inventory turnover is a key metric in supply chain management that indicates how frequently a company sells and replaces its inventory over a specific period. A high inventory turnover rate signifies that a business is efficiently managing its stock, selling goods at a pace that keeps them fresh and minimizing holding costs associated with unsold inventory. This is critical for effective inventory management as it highlights the balance between supply and demand, ensuring the business is not overstocked or understocked, which can either lead to excess costs or missed sales opportunities. The focus on frequency of sales provides insights into sales performance and inventory management effectiveness, making it an essential indicator for operational success.