What is stock turnover ratio (STR)?

Stock turn ratio (STR) measures the effectiveness of your investment in spare parts. It calculates whether the money you’ve spent on inventory is impacting your facility or if it’s sitting idle on storeroom shelves. STR tells you if you have over-invested in stock and indicates if you have the right inventory mix. It directly relates your inventory level to the demand level for that inventory.

How is STR measured?

Stock turn ratio is calculated by dividing the dollar value of inventory issued in the past year by the dollar value of inventory held when the measure is taken.

Stock turn


Value used in past 12 months  ÷

Value held today

For example, if a company holds $5M of inventory today and has issued $2.5M of inventory in the past year, the STR is 0.5 (it has turned over its inventory investment at the rate of one-half per year). A world-class STR is 2.5.

It would help if you took note that the stock turnover is a ratio versus a percentage. This is because the units are different for the figures used in the calculation. The value used in the past 12 months is in dollars per year, and the value held today is in dollars. That’s why the value of the above example is 0.5, not 50%.

Benefits of measuring and tracking STR

Tracking stock turnover ratio can benefit maintenance teams in various industries. Here are some of the advantages:

  1. Optimized inventory levels: Maintenance teams can better manage their inventory levels by monitoring the stock turnover ratio. They can avoid overstocking or understocking, leading to wasted resources or production delays. Maintaining the right inventory level ensures that necessary spare parts and equipment are always available when needed.
  2. Cost reduction: Maintaining excess inventory ties up capital and incurs storage costs. Maintenance teams can reduce carrying costs and minimize the risk of obsolescence or deterioration of spare parts by optimizing stock turnover. This, in turn, leads to cost savings for the organization.
  3. Enhanced maintenance planning: Knowing the rate at which spare parts and equipment are used allows maintenance teams to plan their maintenance schedules more effectively. They can schedule maintenance activities to coincide with stock replenishments, reducing downtime and optimizing maintenance resources.

Monitoring the stock turnover ratio for maintenance teams is a valuable tool to optimize inventory, reduce costs, improve maintenance planning, and make data-driven decisions, ultimately contributing to more efficient and cost-effective maintenance operations.

How do I use STR?

You can use STR to determine how to spend your inventory budget better. Stock turn ratio can help you investigate your investment in spare parts and spot operational inefficiencies in purchasing, tracking, and using inventory. For example, a stock turn ratio of 0.5 is low, yet typical, and indicates an overstocked plant, especially if stock outs are also low.

If stock outs are high and the STR is low, a facility is probably investing in inventory that isn’t being used, while lacking in-demand stock. STR targets are influenced by several controllable and uncontrollable issues, such as inventory purchasing processes and the facility's location.

Common challenges when using STR

There are several common challenges when using and interpreting stock turn ratio.

Excluding certain inventory

A stock turn ratio must be applied across the entire inventory. It’s not accurate if only certain inventory is selected. That’s because some inventory items will have a high turnover while others will be low, so it’s necessary to consider everything. The ratio aims to measure the overall efficiency of the inventory investment.

Using incorrect data

The stock turn ratio shows the effectiveness of the investment in spare parts over a year, so the calculation should be based on the value used in the past 12 months. However, a common mistake is to base the calculation on the value purchased. Depending upon where a company is in the spare parts stocking cycle, the two values of used versus purchased inventory could be significantly different. This then results in a misleading stock turn ratio.

Misinterpreting the ratio

A common mistake is interpreting the calculation as a percentage vs a ratio. Using the example above with a stock turn of 0.5, 10% of the inventory value has moved five times, and the other 90% has never moved. If a percentage is used, it would imply that 50% of the items have moved when this is not the case.

How to improve STR

STR is best improved by managing your storeroom investment better. Achieving a best-in-class STR requires several carefully developed strategies and tactics implemented concurrently over a significant period. To improve your STR, it is helpful to start with the following steps:

Identify obsolete inventory

Almost every storeroom has some parts that are for equipment no longer in service, have been redesigned, or are otherwise unusable. Any items found to be obsolete should be flagged in the system and physically segregated.

Identify excess inventory

Excess inventory refers to usable stock that exceeds the amount of time anticipated for turn. For most items, inventory should not exceed the sum of the reorder point plus the quantity. In other words, excess inventory is the amount of on-hand inventory above the highest expected level.

Prioritize active inventory

Determine the items that have the most significant impact on service and investment. This will help identify the inventory you should spend the most time on. Make sure to exclude anything identified as obsolete.

Establish a baseline

A baseline profile uses the results of the above activities to give a high-level view of the current state of your inventory. It shows the amount of investment that’s tied up in obsolete and excess material, how your stock is distributed by activity level, and how quickly materials are turning over at an aggregate level.

Stock turnover ratio evaluates an organization's inventory

Stock turnover ratio provides insight into whether the funds allocated to inventory drive results or lie dormant. Organizations can identify operational improvement opportunities by understanding how STR is measured and interpreted. Moreover, recognizing common pitfalls in utilizing STR can lead to more accurate and insightful analysis. To optimize the stock turn ratio, organizations should continually assess their inventory for obsolescence, identify excessive stock, prioritize crucial inventory, and establish a clear baseline for continuous improvement. Mastering the intricacies of STR ensures a streamlined inventory system and promotes sustainable financial health for an organization.

3D Fiix logo

Empower your maintenance team

Leverage the cloud to work together, better in the new connected age of maintenance and asset management.