Storage period: A central key figure for efficient inventory management

When it comes to concise logistics key figures for controlling and optimizing warehouse management, the concept of warehouse duration plays a central role. This value corresponds to other key performance indicators (KPIs) and has a direct influence on the profitability and capital commitment of a company. In the following article, you will learn what "inventory life" means, how the value can be calculated - and how inventory life can be improved in ongoing operations.

Table of Contents:

  1. What is the storage period? Definition
  1. Formula for calculating the storage period
  1. Calculate and optimize average storage time
  1. How can the average storage period be reduced?
  1. Improve storage duration and use synergies

What is the storage period? Definition

The term storage period indicates how long goods remain on average at Sites before they are picked and delivered or until they are transported on to the company's own production in the course of intralogistics. The storage period is often also referred to as the turnaround time. As a rule of thumb, it can be stated: The shorter the storage period in days, the lower the capital commitment of a company - and the more favorable the economic effect.  

Optimize capital commitment

The art of forward-looking inventory management therefore lies in balancing the storage period between different objectives. The aim is to avoid holding oversized quantities of stock that tie up an unnecessary amount of capital. This has a direct impact on the company's liquidity. An optimized storage period improves liquidity.  

Reduce fixed costs

There is also a positive effect on fixed costs. An optimized storage period means that less space needs to be reserved for identical warehouse performance. Construction and warehouse utilization costs are reduced. Additional rentals of external warehouses, if currently still available, can be reduced and thus relieve the cost side.  

Ensure availability of goods

On the other hand, in the course of inventory management, inventories must also not be planned too tightly so that there are no bottlenecks or delays in supplying the company's own production or fulfilling customer orders. After all, the profitability of a company would suffer just as much if this were to happen.

Formula for calculating the storage period

You want to calculate the storage time for your own inventory management? A simple formula serves as the basis for this:

Average storage period = 360 days (alternatively 365 days) x average stock divided by annual consumption.

For logisticians, the storage duration of the various product groups is of particular interest. This can be calculated with the same formula and the corresponding figures.

Calculate the inventory turnover rate

Another important key figure is the inventory turnover rate. This figure provides information on how often an average inventory was completely withdrawn from a Sites and replaced during a fiscal year. Use this formula to calculate your inventory turnover rate:

Inventory turnover = sales revenue / value of the average inventory level

Calculate the stock interest rate

In relation to the storage period, the so-called warehouse interest rate is also highly relevant as a further logistics key figure. It can be used to calculate how much impact warehouse optimization has on the profitability of a company. After all, stored goods tie up capital that cannot be used elsewhere for the company. The stored capital is therefore fictitiously compared with how much return could be achieved in the same time.

To do this, you can use the following formula:

Storage interest rate = interest rate per year x average storage period divided by 360

Calculate and optimize average storage time

What benchmark should companies aim for in terms of their average storage time? This question can hardly be answered in a generalized way because it depends on various internal and external factors. The current procurement situation plays a major role. Can raw materials and goods be procured quickly and reliably at any time? Or are there certain supply and transport bottlenecks, so that additional stockpiling is recommended as a safeguard?  

In addition, there are also industry-specific peculiarities to consider: In the consumer sector, retail and e-commerce, the storage period tends to be shorter, while manufacturing companies tend to have longer storage periods - if only to ensure secure production chains. It is therefore advisable to use benchmarks and best practice examples from related areas and from one's own industry to evaluate one's own storage period.

It is advantageous to know the storage period of one's warehouse. However, the ratio must also be followed by measures to improve it.

How can the average storage period be reduced?

As a matter of principle, forward-looking inventory management always endeavors to keep the storage period as short as possible and thus the inventory turnover rate as high as possible. There are various ways to achieve this goal. Here you will find information on four particularly important approaches to reducing the average storage time in your company:

  • An enterprise resource planning system provides sound data on inventories in real time. On this basis, it is possible to optimize purchasing and procurement management.

  • With suitable warehouse management software such as TradeLink, many optimizations can be realized along the supply chain. For example, it is possible to plan transports in a more demand-oriented and resource-saving way.

  • Just-in-time deliveries reduce the company's own warehousing costs and ensure procurement virtually on demand. This also requires efficient warehouse management to coordinate delivery dates for raw material and goods orders.

  • For manufacturing companies, optimized production planning can help them use existing capacities and resources more efficiently.  

In the long run, smart warehouse management and forward-looking procurement lead to a noticeable reduction in storage time and your company can benefit from liquidity advantages. Last but not least, warehouse optimization must take into account individual factors of the goods to be stored. These include special features of the items such as expiration dates, fragility or special requirements for storage conditions and a maximum possible storage period.

Optimize storage duration with intelligent planning

Unlock hidden potential in your Sites with TradeLink. The simple and intuitive entry into effective delivery reconciliation improves the productivity and reliability of your logistics. At the same time, all parties involved benefit from high transparency. In this way, you can optimize warehouse quantities and shorten storage time. You have further questions and would like to use a free demo of the TradeLink software? Our experts will be happy to help you.

Improve storage duration and use synergies

Inventory duration is an important logistics metric that provides insight into the profitability and efficiency of current operations. Is a lot of "dead capital" kept on hand or is warehouse planning done in a networked and digital way? Optimized warehouse management creates the prerequisite for reducing warehouse duration and improving your company's liquidity.  

As a result, inventory duration has a direct impact on other key KPIs. With TradeLink, you have a simple and powerful solution to directly impact the entire supply chain, automate processes and take Sites- and delivery reconciliation to a new level.

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