What is the role of inventory turnover in supply chain management?

Inventory turnover is a crucial metric in supply chain management that measures how effectively a company manages its inventory. Specifically, it indicates the number of times inventory is sold and replaced over a certain period, typically represented as a ratio. A higher inventory turnover rate signifies that a company is selling its goods quickly, which can reflect strong product demand and efficient supply chain operations.

By assessing product demand, inventory turnover helps determine how well inventory levels align with actual sales. If inventory turnover is low, it may signal overstocking or weak sales, which can lead to increased holding costs and potential obsolescence of products. Conversely, a high turnover rate implies that products are in demand and that a company is efficiently turning its stock into sales, minimizing waste and excess inventory costs.

This metric is vital for decision-making within supply chain management, allowing businesses to adjust their inventory strategies proactively, ensuring the right products are available at the right time to meet customer demand without incurring unnecessary costs. Hence, its role primarily revolves around assessing product demand and supply efficiency, making it the correct choice.