1. What is Months Supply of Inventory?

Months Supply of Inventory is a key inventory management metric that calculates how long current inventory levels will last based on current sales rates. It helps businesses optimize inventory levels and avoid stockouts or overstocking.

2. How Does the Calculator Work?

The calculator uses the Months Supply formula:

Where:

• \( \text{Inventory} \) — Current inventory level in units
• \( \text{Sales} \) — Annual sales rate in units per year

Explanation: The formula converts annual sales to monthly sales by dividing by 12, then divides current inventory by the monthly sales rate to determine how many months the inventory will last.

3. Importance of Months Supply Calculation

Details: Calculating months supply helps businesses maintain optimal inventory levels, improve cash flow, reduce carrying costs, and ensure product availability for customers.

4. Using the Calculator

Tips: Enter current inventory in units and annual sales in units per year. Both values must be positive numbers for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is an ideal months supply value?
A: Ideal months supply varies by industry, but generally 1-3 months is considered healthy for most retail businesses.

Q2: How often should I calculate months supply?
A: It's recommended to calculate monthly or quarterly to monitor inventory trends and make timely adjustments.

Q3: What if my sales are seasonal?
A: For seasonal businesses, use rolling 12-month averages or calculate based on the upcoming season's projected sales.

Q4: How does this differ from inventory turnover?
A: Months supply shows how long inventory will last, while turnover shows how many times inventory is sold and replaced in a period.

Q5: What should I do if months supply is too high?
A: High months supply indicates overstocking - consider promotions, discounts, or reducing future orders to optimize inventory levels.