KPIs … The third is the most important, since data is useless without an actionable understanding of it. For example, a low inventory turnover spurs you to track down a reason and helps you improve inventory … He should effectively collaborate with his peers to coordinate and guide processes together so that they get optimized inventory results. Combined with the inventory turnover or the carrying costs of inventory, it will give you a better picture of the financial stability of your business, but also help to define the direction you want to take (like selling your entire inventory as quickly as possible or not). What it means: This KPI indicates whether or not your inventory is meeting customer demands. To effectively evaluate your supply chain metrics strategies, you need real-time access to the status of your orders: if the products are shipped, received, in the packaging process, or canceled. Improving something you can't measure is an exercise in frustration. A higher ratio shows that you have either strong sales or it could indicate that you are giving customers large discounts. One note before we get started: there are many, many articles out there describing key warehouse metrics. Which strategies are contributing to the increase in your sales and revenue? It is good to optimize space, as well as streamline order fulfillment. What it means: The stock to sales ratio will help you keep your inventory at optimum levels. It is measured by dividing the available inventory for sale by the quantity that is actually sold. Within each section, we will define the specific, standard inventory KPI, tell you how it’s calculated (inventory KPI formulas), and what it each metric tells you about your stock, processes, or sales. What it means: This KPI tells you how much you will spend (as a percentage) to hold and store your inventory annually. Sales KPIs Inventory KPI examples couldn't be complete without the average time to sell. To see how you can benefit from BI software, simply try out our 14-day free trial! When we look at some facts and figures, we find out that for retail, inventory is accurate only 63% of the time on average, or that 88% of supply chain managers estimate that they could reduce inventory levels by more than 5% with improved processes and technology. Other potential KPIs… To analyze the financial perspective of your collected information in more detail, we suggest you take a look at our page focused on business intelligence in finance. Monitoring Supply Chain KPIs … To make it easy, we’ve broken them down into three sections: sales, receiving, and operational KPIs. What it means: This KPI, when excessive, may mean that you have a problem with inventory damage, theft, miscounting, or supplier fraud (when a supplier bills for more products than it sends), and that a thorough investigation should be performed. To master the art inventory management, here are a few tips. What it means: This KPI tells you how efficient your receiving process is. The use of online BI tools to set up and track the right inventory metrics they need is a must-do in order to spot out and catch any opportunity as they arise, and conversely, identify problems to fix as soon as possible. Your average inventory shouldn’t have unexplained drops or spikes. B-items: valuable but with a medium priority. When the number is high, it may indicate that your inventory movement is inefficient. Advisors and business owners can adopt several universally accepted inventory management ratios and KPIs (Key Performance Indicators) to help them monitor business.. This technique can be a bit trickier for manufacturers because as we stated earlier, you need data on trends to have enough stocks for retailers. Definition: A ratio that shows how many times inventory was sold and replaced during a specific time period. Collecting big amounts of data is not the only thing to do; knowing how to process, analyze, and visualize the insights you gain from it is key. KPIs not only provide an … Inventory metrics can be common to different industries, and it is no surprise that you can identify one as a logistic KPI, but also see it listed as a retail KPI for instance. These are just a few examples of key performance indicators for inventory … It is measured by dividing the quantity of items in inventory by the average daily demand. So far, we’ve mentioned a few examples of sales KPIs and metrics. When your put-away process is efficient, your lead time is significantly lower. Definition: The percentage representing cents per dollar that is spent on inventory overhead each year. Among other things, they help in improving on-time deliveries, in reducing operating costs, in increasing customer satisfaction, or in optimizing transport. For example, modern software can track data in real-time and provide advanced charts that will immediately trigger actionable insights since the user doesn't have to manually scroll or search for information in numerous papers or spreadsheets. The most popular inventory KPIs, on the other hand, are inventory-to-sales ratio, rate of sale, weeks of supply, open-to-buy, average inventory, and inventory turnover rate. In this article, we will take a closer look at the inventory management: what are the performance indicator that can help, how to choose them, and outline some inventory metrics examples as well as best practices. Key performance indicators (KPIs) are a set of performance measurements that demonstrate how effectively an organization is achieving key objectives. But let's get back to our visual example. But it’s essential to be able to put a quantifiable number in … Inventory turnover is an important indicator of the efficiency of your supply chain, the quality and demand of the inventory … From a procedures’ checklist to follow at the reception of an item, to damage monitoring and product compliance, make sure all your employees are aware of the entire quality control process that should be observed. Inventory Management KPIs to Track. Another critical point to consider here is the fact that, if you're in an industry where profit margins are tight, even the smallest costs can play an extremely important role. In inventory management, KPIs matter because they offer information about turnover, sales, demand, costs, process success, relationships and more. When you need to reduce your cost of carrying inventory, it’s important to reduce your inventory by eliminating obsolete, slow-moving, or dead stock inventory. Usually, carrying costs amount between 20% and 30% of the company's inventory value, and this significant percentage makes it an essential factor to account for and monitor closely. A low or dropping inventory to sales ratio. Typical examples are: Inventory value; Inventory turnover; Carrying cost; Stock outs: the reason for stock-outs can be caused by an unanticipated high demand, delivery mistake or internal false assessment to reorder. Additionally, you can connect this metric with a procurement KPI such as the cost reduction to see how you can allocate your savings, and how the average time to sell affects it. Examples of current assets are cash, inventory and accounts receivables. Another KPI that can make or break your warehouse is the efficiency of your receiving area; don’t ignore it for other seemingly more important areas of the warehouse. In our inventory KPI example illustrated above, you can see that the end of the working week has the highest percentage of out of stock rates. Classify them as follows: Thanks to such organization, you can organize your warehouse according to how your inventory is sold and how much value which item brings to your business. (We’ve probably read them all). Definition: The percentage of the time that customers receive their orders on time. If you sell large ticket items, they typically move slower than lower-priced products. If your inventory management efforts don't seem to be bearing fruit, it's time to take a closer look at inventory management key performance indicators (KPIs… This is an inventory KPI that can make or break your business: if you do not have in stock what you sell online on your eCommerce platform, for instance, can considerably harm your business. This number reflects how often inventory is sold and replaced within a predefined time period—typically a year. Ordering, storing, loading the goods of your inventory – all this needs money to be executed properly. For example, if you have a higher percentage of orders that are canceled, it would make sense to examine why. Definition: The percentage of units sold during a specific time period. It typically connects to other inventory performance metrics such as the out of stock rate and lost sales, for example, and covers 3 different critical points: shelf availability, store, and warehouse availability. They will also help you visualize easily your insights and communicate them in a meaningful way through inventory dashboards. This metric will also help spot issues related to shipping, receiving, or accounting. Need a permanent quality review and regular reordering. Additional adjustments for retail inventory metrics should focus on the reasons behind slow processing, lower amounts of new orders, or higher inaccuracies. Especially in the FMCG industry, where laws related to food safety and management need to be carefully respected in order to avoid potential legal bottlenecks. Answers to these questions and more are essential to understanding all the aspects of your business and its continued growth. So it would be helpful to outline not just which metrics to use but also whyyou need each one and how those metrics line up with your warehouse layo… Formula: Average Inventory ÷ Cost of Goods Sold x 52. A higher back order rate tells you that your forecasting is inefficient or your inventory management needs work. This visual will enable you to create an effective data-story that will translate into positive business results since you will save time in the analysis process and increase productivity. There are also human costs like labor, transport, and delivery that should not be forgotten. These costs can include warehousing costs, insurance, employee costs as well as damages of goods, rent, utilities, etc. This inventory management KPI is crucial to monitor accurately at all times since it will show you if your production should be increased or decreased to keep the balance between income and expenses. Since both cost factor and customer experience are essential in inventory management and for any business, let’s have a look at the top 10 promising inventory KPIs that cater to these two areas. Cost of carry: Expenses associated with storing inventory, such as leasing, climate control, and administrative costs. That said, It's extremely important setting up and tracking the inventory KPIs for your business is in order to evaluate and improve your performance. Indeed, they help you drive the most effective behaviors, strategies, and decisions. The inventory turnover looks at how many times, over a certain period, your entire inventory is sold. That way, you will be able to manage your inventory more effectively and avoid potential issues in the future, even before they arise. Our groundbreaking open source order management software will blow your mind. Inventory Turnover Ratio. “…KPIs … Definition: Total time taken during the entire process of each put-away task. This makes sense since food and beverages have shorter freshness longevity and they need to be replaced more often than appliances, for example. This warehouse KPI evaluates the expenses involved in the management of your warehouse. When the rate is too high, it may mean that you have too little inventory, or you priced too low. What it means: Your sell through rate tells you the percentage of your available inventory that actually sold. There are numerous KPIs that you can track in different areas of your business. If tracking inventory is important to you (it should be) get a demo of the SkuNexus platform to see our unique approach to dashboards. 4 MIN READ. If you start losing large amounts of sales because of this metric, your whole business can suffer so it's of utmost importance to put the on-shelf availability on the list of key inventory metrics to measure regularly. Nonetheless, some common KPIs serve the … 1. Want to visualize & track inventory KPIs with ease? What it means: This KPI indicates your performance in getting customers their orders within the time that you have specified. Let’s take a look at each section individually in this inventory KPI list. Formula: (Average Inventory ÷ Cost of Sales) x 365. In our cutthroat digital economy, massive amounts of data are gathered, stored, analyzed, and optimized to deliver the best possible experience to customers and partners. These inventory metrics and other key performance indicators (KPIs) can tell you right away how a business defines itself, conveying the trends most important to the company. In our example above, we can immediately spot that tobacco has the highest average time to sell, followed by personal care, household care, and, finally, food and beverages. What it means: This KPI tells you how effective your put-away process is. Formula: (Cost of Recorded Inventory – Cost of Physical Inventory) ÷ Cost of Recorded Inventory. Definition: The percentage of inventory that is listed in records but is not physically in the actual inventory. In this case, the point is to monitor this rate and identify when and what is missing. Within each section, we will define the specific, standard inventory KPI, tell you how it’s calculated (inventory KPI formulas), and what it each metric tells you about your stock, processes, or sales. To be specific, you can see afternoons have a particular spike that will enable you to solve these issues and prepare for the future much better. Formula: Units sold ÷ (Units sold + On-hand inventory). Knowing the rate at which your stock is received and becomes ready to sell will help you identify any deficiencies that are occurring in your warehouse, so they can be addressed quickly. Sample sales KPIs and metrics. What it means: This KPI tells you how much of your inventory is being returned to you, allowing you to identify any patterns of issues (defective or malfunctioning products, inferior quality products, etc.). To calculate inventory turnover, use the following formula: Cost of Goods Sold ÷ Average inventory. Efficient picking, packing, shipping of accurate orders on time will keep customers coming back. When the rate is too low, it means you have too many units on-hand (you overstocked), or you priced too high. Knowing which inventory KPIs to monitor and understanding what they mean is critical to effectively managing your inventory. At the same time, inventory metrics are needed to help managers and professionals in reaching established goals, optimizing processes, and increasing business value. Key performance indicator (KPI) is a measurable value that shows the progress of a company’s business goals. As a general rule of thumb: the higher, the better. Data consolidation and analysis is simple, thanks to the intuitive drag and drop interface. What it means: This KPI tells you how much stock you have on average during a specific time frame. If you have a low turnover, that might point out difficulties in turning your stock into actual revenue – you then need to investigate where the bottleneck(s) is(are), at any moment in your supply chain process. In this case, we can see inventory measurement metrics such as the inventory to sales, turnover, carrying costs, accuracy, and the percentage of stock items on a dynamic, online data visualization overview. 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