KNOWLEDGE LIBRARY

Meta

Average Inventory Value

Average inventory value (AIV) is the average value of the total inventory investment over the course of a year. It should be computed as the average of several on-hand inventory values measured at random times during the year. An example average inventory value calculation for a major textiles company is illustrated below. The average is computed by taking the average of 13 end-of-period inventory values. Though better than quarterly figures, any end of period values may be somewhat misleading due to the fact that inventory levels tend to be lowest then.
The natural assumption for average inventory value is that lower is better, especially if it is charted in isolation. However, average inventory value is properly presented relative to target values, within control limits, and/or with respect to service levels. Those presentations are required to demonstrate the critical relationship between inventory investment and the fill rate provided by that investment.
Expected average inventory values required to support target unit fill rates ranging from 50% to 99.95% are displayed below. Note that as target fill rates increase, so does the expected inventory value required to support them.

Leave a Reply

Your email address will not be published.