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Module 14 · KPIs + optimisation

Inventory Turnover, MOQ & Reorder Level

Inventory turnover ratio, days inventory outstanding, EOQ, MOQ negotiation, reorder point, safety stock and min/max setting for working capital control.

Course reading

Understand the process

Part 1

Choose when and how much to buy

A reorder point is the stock level that triggers replenishment. A simple starting estimate is demand during supplier lead time plus safety stock. If usage is 10 units per day, delivery takes 8 days and safety stock is 20, the reorder point is 100 units. This rule needs review when demand or delivery time changes.

MOQ is the supplier's minimum order quantity. An MOQ of 500 when annual demand is only 300 creates excess stock even if the unit price looks attractive. Negotiate smaller lots, shared deliveries or an alternative source, and compare the extra unit price with the cost of holding unused stock.

Part 2

Measure stock against consumption

Inventory turnover compares the cost of goods used or sold over a period with average inventory value over the same period. Higher turnover often means less cash tied up, but too little stock can damage service. Days inventory outstanding expresses roughly how long stock is held before use or sale; interpret both alongside lead time and availability.

An economic order quantity (EOQ) balances ordering cost against holding cost under simplified, fairly stable demand. It is a guide, not a substitute for real supplier constraints or safety needs. Review fast movers and large MOQs first, then document each new reorder rule with its assumptions.

What you must take away

  • Turnover = cost of goods sold ÷ average inventory. Days inventory = 365 ÷ turnover.
  • Reorder level = average daily demand × lead time + safety stock.
  • A supplier MOQ is a negotiable term, not a law of nature.

Case study

Working capital hidden in minimum order quantities

Setting. A purchasing desk buying 600 consumable items from 40 suppliers.

Problem. Turnover was falling while service was not improving. Buyers said the MOQs left them no choice.

How it was investigated

  • Compared MOQ against annual consumption per item to find items where one order covered years of demand.
  • Recalculated reorder levels using measured lead times rather than inherited settings.
  • Grouped items by supplier to see where a combined order could replace many small ones.

What was changed

  • Renegotiated MOQ for the worst offenders in exchange for an annual volume commitment.
  • Introduced consolidated ordering per supplier to meet value minimums without over-buying single items.
  • Reset min/max on the top consumption-value items using actual lead times.

Outcome. Average inventory reduced on the reviewed items while service level held, improving turnover.

Lesson: Find the items where one MOQ buys more than a year of demand — that list is your fastest cash win.

Illustrative composite of common shop-floor situations — no client names or confidential figures.

Practical template

Reorder level and MOQ review

Recalculate min/max from measured demand and lead time.

MaterialAvg daily demandLead time (days)Safety stockReorder levelMOQMOQ = months of coverAction
MAT-104220211205405,0008.3Renegotiate MOQ to 1,500

How to use it

  • Reorder level = avg daily demand × lead time + safety stock.
  • MOQ months of cover = MOQ ÷ (avg daily demand × 30). Anything above 3 goes on the negotiation list.
  • Recalculate every six months, or whenever lead times change.
Download workbook & KPI template (PDF)

Quick quiz — check your understanding

  1. 1. MOQ stands for:

  2. 2. If daily use is 10 units, lead time 5 days and safety stock 20, the reorder level is:

  3. 3. Higher inventory turnover usually means:

  4. 4. EOQ helps to find:

  5. 5. Days of inventory tells you:

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