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Average storage period
What is the average storage period?
The average storage period is one of the most important key figures in warehouse management and shows you how long your goods remain in storage on average. This period has a significant impact on your liquidity and capital commitment.
Companies that effectively manage their storage duration benefit from reduced storage costs and improved cash flow. This key figure provides information about how efficiently you manage your inventory and how quickly you can convert goods into sales.
The optimal average inventory turnover varies depending on the industry and business model. While food retailers strive for shorter storage times due to the perishability of their products, mechanical engineering companies can cope with longer storage cycles. Regular analysis of this key figure enables you to identify weaknesses in your warehouse process and initiate targeted improvement measures.
Basics of average inventory turnover
Average inventory turnover measures the period between goods receipt and goods issue in your warehouse. This key figure reflects the efficiency of your entire warehouse management and directly influences your operating costs.
Capital tied up in inventory is not available to your company for other investments. The longer goods remain in storage, the higher the opportunity costs. In addition, there are ongoing costs for warehouse rent, insurance, and personnel.
The average inventory turnover depends on various factors: fluctuations in demand, supplier relationships, product characteristics, and your ordering policy. Seasonal fluctuations can significantly influence inventory turnover. For example, retailers stock more goods before Christmas, which temporarily leads to longer inventory turnover. A well-founded analysis takes such cyclical effects into account and enables realistic target values for your company.
The average inventory holding period formula explained
The average inventory holding period formula is based on the ratio between inventory and consumption. There are basically two calculation approaches that lead to the same result.
Formula 1 – Basic formula:
Average inventory holding period = (average inventory × 360 days) ÷ annual consumption
The first approach uses this inventory turnover formula with the average inventory, which is calculated from the mean value of the inventory on various reporting dates.
Formula 2 – Using inventory turnover rate:
Average inventory turnover = 360 days ÷ inventory turnover rate
This variant is particularly suitable if you have already calculated the turnover rate. The inventory turnover rate indicates how often your inventory is completely turned over per year. Both formulas provide identical results and can be used flexibly depending on the available data.
Calculating average storage duration: Practical guide
To calculate the average storage duration, you need three essential data sets: the average inventory level, the annual consumption, and the selected calculation period.
First, determine your average inventory. To do this, add up the inventory levels on several key dates and divide by the number of measurement points. Monthly key dates provide more accurate results than just the beginning and ending inventory for the year.
Annual consumption corresponds to the cost of goods sold at cost prices. Make sure that inventory and consumption are based on the same valuation basis. The average storage period is then calculated by dividing the inventory multiplied by 360 days by the annual consumption. The result shows you the storage period in days. Check your calculation for plausibility: Unrealistically high or low values indicate errors in the basic data.
Calculate cost of goods sold using storage period and inventory
This key figure allows you to calculate the cost of goods sold using storage duration and inventory by converting the basic formula. This retroactive calculation helps with budget planning and cost control.
If you know the average storage duration and inventory, you can calculate the cost of goods sold as follows: Cost of goods sold = (average inventory × 360 days) ÷ average storage duration. This calculation helps you validate your consumption data.
In practice, controllers use this reversal to check the plausibility of their figures. If the calculated values deviate significantly from the actual consumption figures, this indicates recording errors or unusual business events. Regular checks of this kind improve the data quality of your controlling and create confidence in your inventory key figures. You can also use this method for forecasts if you have defined target values for the storage period.
Reducing average storage time: strategies and measures
Measures to reduce the average storage period require a systematic approach that encompasses all areas of warehouse management. Optimized ordering cycles reduce excess inventory and shorten the dwell time of your goods.
Improved demand forecasting helps to reduce the average storage time. Use historical sales data and market trends to determine more accurate order quantities. ABC analyses identify fast-moving items that should be ordered more frequently.
Digital warehouse management systems support you with automated order suggestions and minimum stock monitoring. FIFO (first in, first out) principles prevent goods from remaining in storage for too long. Sales promotion measures for slow-moving items can also help reduce storage time. Close coordination between purchasing, sales, and inventory management creates transparency about demand trends and enables agile responses to market changes. This coordinated approach leads to sustainable improvements in your inventory metrics.
Industry comparison and benchmark values
The average storage period varies considerably between different industries and business models. Food retailers typically achieve values between 8 and 15 days, while mechanical engineering companies can easily reach 60 to 120 days.
Retail companies generally aim for shorter storage times than manufacturing companies. Seasonal businesses such as clothing retailers must calculate longer storage times before the start of the season. Luxury goods manufacturers often tolerate longer storage times due to lower turnover rates.
Industry benchmarks serve as a guide for realistic target values. However, keep in mind that internal factors such as customer structure, product mix, and market position influence your optimal inventory duration. You should critically question extreme deviations from the industry average. If your inventory duration in days is significantly above the industry average, check for optimization potential. Values that are significantly below average may indicate supply bottlenecks or insufficient safety stocks. A balance between availability and efficiency determines your individual target value.
Impact on company performance
An optimized average storage period has a positive effect on several key company figures. Shorter storage times reduce capital commitment and significantly improve your liquidity situation.
Freed-up capital is available for investments or debt repayment. At the same time, ongoing storage costs for rent, insurance, and handling are reduced. Lower shrinkage and obsolescence risks also protect your profit margin.
However, reducing inventory duration too aggressively carries risks. Frequent delivery bottlenecks can annoy customers and cause lost sales. Higher order frequencies can increase procurement costs. Careful consideration is required to strike the optimal balance between efficiency and security of supply. Monitoring systems help you keep an eye on critical thresholds and react in time. Gradually adjusting inventory holding time minimizes risks and lets you assess the impact on your business before making further optimizations.
Conclusion: Average inventory holding time as a success factor
Average inventory holding time is a key indicator of the efficiency of your inventory management and directly influences your company’s performance. Companies that systematically monitor and optimize this key figure achieve measurable benefits in terms of liquidity and cost structure.
Successful inventory duration optimization requires a holistic view of all processes involved. From procurement to storage to distribution, all areas must be coordinated. Modern technologies such as ERP systems and business intelligence tools help you create transparency and make data-driven decisions.
Continuous improvement should be your approach. Regular analyses of storage duration reveal trends and enable proactive adjustments. Always consider the tension between cost optimization and service quality. A balanced storage strategy strengthens your competitive position and contributes to the long-term success of your company. Start systematically analyzing your storage duration today—your bottom line will thank you.
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