Question

Explain the relationship between inventory turnover and purchasing needs.

Short answer

There is direct relationship between the inventory turnover and purchasing needs. When the inventory turnover ratio is higher, purchasing need also become higher.

Step-by-step solution

Definition

Inventory turnover is the ratio which shows the number of units or quantity of inventory sold or replaced by the company in a particular period.

Purchasing needs and inventory relationship

Purchasing actions are required to guarantee that necessary materials are obtained quickly and affordably. In a manufacturing company where significant quantities of raw materials and components must be procured regularly, a purchasing team is significant.

The demand for purchases and replacement increases in direct proportion to the inventory turnover rate. In addition to lowering the cost of carrying inventory, quickly turning inventory makes it considerably easier to predict future needs. The better your inventory turnover rate, the quicker your business can sell its products, and the greater the likelihood of a market for those products.