Inventory Turns Calculation for Indian SMBs That Spots Dead Stock

The monthly stock report that hides the real loss

Owners see a stock list with quantities and values. They do not see which items have not moved in 90 days or why certain SKUs sell out every third week. The number that matters is inventory turns. It is cost of goods sold divided by average inventory value. Most Indian SMBs run below four turns a year. That means capital sits idle more than it works.

One textile unit in Tiruppur tracked turns at 2.8 last year. Their gross profit sheet showed the same total profit as the year before, yet cash in bank dropped by 18 percent. The finance executive pulled the data from Tally and found 42 percent of stock value had zero movement for six months.

The owner still approved every purchase order. The purchase executive ordered what the previous month’s sales suggested without checking turns. Result: more money locked in slow items and rush freight on fast items.

Annual profit divided by 2300 working hours gives the owner’s real hourly cost. At 12 lakh profit that is 522 rupees per hour. Spending three hours a week chasing stock status costs 78,000 rupees a year in owner time alone. A process coordinator at 35,000 rupees a month costs less and frees the owner.

Root cause sits in the purchase and sales handoff

Sales records daily dispatches. Purchase records receipts. Neither team updates a shared field for days of stock or last movement date. The MIS therefore shows only current quantity, not velocity. The purchase executive buys on gut feel or supplier push. The sales executive complains about stockouts after the fact.

No one owns the calculation of turns per SKU. The owner ends up reviewing the entire stock list every fortnight. That review takes two hours each time. The pattern repeats because the handoff between sales and purchase has no fixed owner and no fixed day.

The gross profit sheet stays flat while cash cycle lengthens. Suppliers get paid on time. Customers get partial deliveries. The owner absorbs the gap in personal time.

Step one: create the turns tracker

What: a single Google Sheet or Excel file with columns for SKU, category, cost of goods sold last 12 months, average inventory value, turns, days of stock, and last movement date. Who: the accounts executive pulls the numbers from Tally every Monday before 10 am. How: use a simple formula that divides annual COGS by average of opening and closing inventory for each SKU. When: every Monday, with the sheet shared to purchase and sales by 11 am. The accounts executive owns updates and flags any SKU below three turns.

The sheet also carries a column for target turns by category. The target comes from the category average of the last four quarters. No owner approval is needed for the target numbers once set.

Step two: assign the velocity review

What: a 30-minute meeting every Wednesday at 3 pm. Who: the process coordinator chairs it. Purchase executive and sales executive attend. How: the coordinator opens the turns sheet, highlights SKUs below target or above 60 days of stock, and asks each executive for one action. Actions are logged in the same sheet with owner and due date. When: the meeting ends by 3:30 pm and the action list is emailed to both executives within 15 minutes.

The coordinator does not decide what to buy or sell. The coordinator only records the commitment and checks it the following week.

Step three: link turns to purchase orders

What: every purchase order must carry the current turns and days of stock for that SKU. Who: the purchase executive adds the numbers before sending the PO for approval. How: the turns sheet is the single source. The executive copies the two figures into the PO remarks field. When: before any PO above 50,000 rupees is released. POs below that threshold still get logged in the sheet within 24 hours.

This forces the purchase executive to see velocity before committing money. It also creates an audit trail for the accounts executive to check later.

Step four: tie the system to the gross profit sheet

What: the monthly gross profit sheet gains one new row that shows average inventory turns for the month and the cash tied in slow stock. Who: the accounts executive adds the row on the fifth of every month. How: pull the turns average from the weekly tracker and multiply slow stock value by the cost of capital or interest rate the company pays. When: the updated sheet goes to the owner by the fifth and is discussed only if turns drop below the previous quarter average.

The owner now sees the money cost of low turns in one line. No extra meeting is required unless the number moves against target.