CIM Inventory Performance Metrics & KPIs 1 — Questions and Answers
Question 1: What does the inventory turnover ratio measure?
- The number of times inventory is sold and replaced over a period (Correct answer)
- The ratio of on-hand stock to total warehouse capacity
- The percentage of orders fulfilled on the first shipment attempt
- The average number of days it takes to receive a supplier order
Correct answer: The number of times inventory is sold and replaced over a period
Inventory turnover ratio measures how many times inventory is sold and replenished during a specific period, typically calculated as COGS divided by average inventory.
Question 2: Which formula correctly calculates Days Inventory Outstanding (DIO)?
- (Average Inventory / COGS) × 365 (Correct answer)
- (COGS / Average Inventory) × 365
- (Net Sales / Average Inventory) × 30
- (Average Inventory / Net Sales) × 30
Correct answer: (Average Inventory / COGS) × 365
DIO = (Average Inventory ÷ COGS) × 365, which represents the average number of days a company holds inventory before selling it.
Question 3: What does GMROI stand for and what does it measure?
- Gross Margin Return on Investment; profitability of inventory investment (Correct answer)
- General Market Return on Inventory; inventory's market value change
- Gross Merchandise Revenue on Items; total revenue per SKU
- General Margin Rate of Inventory; carrying cost as a margin percentage
Correct answer: Gross Margin Return on Investment; profitability of inventory investment
GMROI (Gross Margin Return on Investment) measures how much gross margin is earned for every dollar invested in inventory, calculated as Gross Margin divided by Average Inventory Cost.
Question 4: A company's fill rate is 92%. What does this indicate?
- 92% of customer orders were fulfilled completely from available stock (Correct answer)
- 92% of warehouse storage space is currently being utilized
- 92% of purchase orders were received on time from suppliers
- 92% of inventory items have been counted and verified this period
Correct answer: 92% of customer orders were fulfilled completely from available stock
Fill rate measures the percentage of customer demand satisfied immediately from on-hand inventory without backorders or lost sales.
Question 5: Which KPI best measures the financial cost of holding inventory relative to its value?
- Carrying cost as a percentage of inventory value (Correct answer)
- Inventory turnover ratio
- Days Sales of Inventory
- Order fill rate
Correct answer: Carrying cost as a percentage of inventory value
Carrying cost as a percentage of inventory value (typically 20–30%) captures storage, insurance, obsolescence, and capital costs relative to total inventory investment.
Question 6: What is the stockout rate KPI used to measure?
- The frequency or percentage of time a SKU is unavailable when demanded (Correct answer)
- The rate at which obsolete inventory is written off
- The percentage of orders shipped from a secondary warehouse location
- The number of purchase orders placed per month to replenish stock
Correct answer: The frequency or percentage of time a SKU is unavailable when demanded
Stockout rate tracks how often inventory is depleted and unavailable to fulfill demand, directly impacting customer service levels and lost sales.
Question 7: Order cycle time as an inventory KPI measures which of the following?
- The total time from purchase order placement to inventory receipt (Correct answer)
- The average time between customer orders for a specific SKU
- The number of inventory replenishment cycles completed per year
- The time required to count and reconcile physical inventory
Correct answer: The total time from purchase order placement to inventory receipt
Order cycle time (also called lead time) measures the elapsed time from when a purchase order is placed to when the inventory is received, affecting reorder planning.
CIM Inventory Performance Metrics & KPIs 1
What does the inventory turnover ratio measure?