Which of the following is a common inventory performance metric?

• A. Lead time
• B. Production yield
• C. On-time delivery
• D. Inventory turnover

Answer: (D)

Inventory turnover directly measures how quickly a company uses and replaces its stock, which is a core way to gauge inventory efficiency. It shows how many times inventory is sold and replenished over a period, usually a year. You calculate it by dividing the cost of goods sold by the average inventory. For example, if COGS is $600,000 and average inventory is $100,000, the turnover is 6, meaning the firm turns its inventory six times a year. A higher turnover generally indicates efficient use of inventory and lower carrying costs, improving cash flow. A lower turnover can signal excess stock or obsolescence and higher holding costs. Of course, turnover needs context—some industries or product types naturally have slower turnover.

Other metrics mentioned don’t measure how quickly stock moves. Lead time is about the speed to fulfill an order, production yield relates to manufacturing quality, and on-time delivery focuses on meeting promised delivery times. While important for overall performance, inventory turnover is the key metric that reflects the rate at which inventory is converted into sales.