Inventory & Supply

Too much stock ties up money, too little loses sales. Knowing when and how much to order is the core of inventory management. This page puts order size, reorder timing, stock turnover and cost of goods sold into numbers.

Which tool for which question?

• Turnover Ratios and Cash Conversion Cycle Calculator (Inventory, Receivables, Payables): Calculates inventory, receivables and payables turnover and their day counts (DIO, DSO, DPO) plus the cash conversion cycle to show how fast working capital turns.
• Cost of Goods Sold (COGS) Calculator and Gross Profit: Calculates cost of goods sold (COGS), gross profit on sales and inventory turnover from opening inventory, purchases, purchase returns, purchase costs and closing inventory.
• Economic Order Quantity (EOQ) Calculator: Calculates the order size that minimises total inventory cost (EOQ), orders per year and order cycle from annual demand, ordering cost and holding cost.
• Reorder Point and Safety Stock Calculator: Calculates safety stock and the reorder point (ROP) from daily demand, demand variability, lead time and service level.

How the calculation works

• Economic order quantity (EOQ) is the order size that minimises the sum of ordering cost and holding cost. Large orders mean low ordering cost but heavy stock; small orders the reverse.
• Reorder point (ROP) = expected demand during the lead time + safety stock. Safety stock is extra stock held against demand and supply uncertainty.
• Turnover = cost of goods sold ÷ average inventory; days is that divided into the year. Combined with receivable and payable turnover it gives the cash conversion cycle.
• Cost of goods sold (COGS) under the periodic inventory method is opening stock + purchases − closing stock; subtracting it from net sales gives gross sales profit.

Things to watch

• EOQ assumes constant demand and costs; if real demand fluctuates, support it with safety stock.
• Enter lead time and demand in the same time unit (days, weeks).
• High turnover is good but can raise the risk of stock-outs.