How much inventory is there in the global economy?
With the start of 2022, we are introducing the “global inventory turnover index.” This index is intended to provide an accurate view of inventory turnover (turns) in the global economy. It uses a large data set of companies as a proxy and calculates inventory turnover as if the global economy were one large, diversified company.
Since we are using a set of companies as a proxy for the overall economy, we call it an “index.” The formal definition of an index is “an indicator, sign, or measure of something.” With this index, we seek to understand how much inventory is present across the globe at a given point in time, and to understand how it changes over time. We believe the number and diversity of the companies included in the index is such that it represents an accurate proxy for overall inventory turnover in the world’s economy.
The intention is to include in the index a minimum of 2,000 and a maximum of 3,000 companies. The companies are all public and for which reliable financial data can be obtained through regulatory disclosures. The companies come from 19 industries involved in the mining, manufacturing, and movement of materials, components, and finished goods. The first iteration dated 30 November 2021, has 2,375 companies, representing about $31 trillion in revenue. While the index calculation is mathematically precise, the value of the index will likely have small fluctuations due to the changing number of companies that are part of it (new companies will be added, and those that are no longer public will be deleted).
We calculate the global inventory turn index as follows:
“n” is the number of companies included in the data set. In other words, global inventory turnover is calculated as the sum of all COGS for all companies divided by the sum of all inventories for all companies, for trailing twelve-month (TTM) results as of the date on the index. For all companies in the data set, trailing twelve-month results are pegged to their most recent quarterly results as of the date on the index.
As of 30 November 2021, the global inventory turn index stood at 5.9, which means that there are roughly 2 months of inventory in various forms (raw materials, WIP, finished goods) in the global economy. We will update the index quarterly and track its progress over time.
Figure 1 shows the 19 industries that are part of the index, depicted as a supply chain in left-to-right fashion. It also shows the number of companies in each industry and their cumulative revenue, as of 30 November 2021. The number of companies will fluctuate through time as some companies are taken private and others are added. This and additional operational information relevant to supply chain management can be found in the industry benchmarking report, downloadable at this link.