Monthly reordering is usually sufficient. This number reflects how often inventory is sold and replaced within a predefined time period—typically a year. Advisors and business owners can adopt several universally accepted inventory management ratios and KPIs (Key Performance Indicators) to help them monitor business.. What it means: This KPI tells you how much stock you have on average during a specific time frame. Benefiting from the numerous advantages data analysis tools provide will make you stand out of the crowd, and ultimately increase your efficiency even more. When your turnover rate is low, it indicates you have weak sales and excess inventory. 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. If you can’t get your orders right,customers won… These costs can include warehousing costs, insurance, employee costs as well as damages of goods, rent, utilities, etc. C-items: low-priority stock, generally carried in high volumes and needing a minimal reordering. These KPIs are influenced by your customers’ actions and they will let you know how your inventory is affected. Definition: How efficient your process for receiving stock is. With them, you get the data you need to make strategic and better-informed decisions that will positively impact your business. schedule a demo of our order management system, Increase Automation to Reduce Human Error. In short, be mindful of your carrying costs. To calculate your inventory turn ratio, divide the cost of sales by inventory. What is it that is making your online store a success? Thanks to this little guide to inventory management best practices and metrics, you have some of the keys in hand to have better control over your business and reap maximum benefit. Another reason why there is no general answer for inventory metrics in general is because your targets and objectives will vary based on your strategy – for example … Definition: The amount of inventory on-hand during a specific period of time. 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.). What it means: This KPI tells you how efficient your receiving process is. Definition: The average amount of time it takes to sell the inventory it holds. By Sandra Durcevic in KPIs, Aug 20th 2020. Data consolidation and analysis is simple, thanks to the intuitive drag and drop interface. If you spot inefficiencies in your supply chain, it will affect your inventory, and, consequently, the overall business. Formula: The time taken for received inventory to be put away and ready to pick. Let’s be honest: It would be great if you tracked all of these metrics. For example, if you have a higher percentage of orders that are canceled, it would make sense to examine why. Ordering, storing, loading the goods of your inventory – all this needs money to be executed properly. Any serious company that wants to increase revenue and profits, needs to evaluate demand and act accordingly, meaning keep products on shelves, visibly accessible, and easy to reach. It’s often measured against the turnover rate of industry averages. When an item doesn’t match the company’s quality standards, they will return them to the supplier, and reduce the stock levels. To do that, you need to understand how to monitor the right key performance indicators (KPIs). To ensure customer satisfaction and steady business growth, it is imperative to have quality control processes. To choose the most reliable and efficient inventory management metrics, here are some tips that you need to take into account: Once you have chosen the inventory metrics that will best fit your business and your needs, let’s go over some examples to illustrate them, as well as some best practices to observe. Formula: (Average Inventory ÷ Cost of Sales) x 365. Especially in online retailing, where consumers can access massive amounts of products with a few clicks. One of the most critical inventory KPI metrics, the carrying cost of inventory, will show you the total of all expenses that occur when storing unsold goods. We will finish by presenting a business dashboard that will show how those metrics work together when depicting an inventory data-story. As a general rule of thumb: the higher, the better. 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. Definition: How long it takes to turn your inventory into sales. With the help of what we wrote above, you can choose the KPIs that fit best your business’ needs, and track them over time. By performing regular cycle counts, equipping yourself with electronic tags will make the work easier and provide you with data needed to compare your physical inventory to the electronic record of it. When the rate is too high, it may mean that you have too little inventory, or you priced too low. Among other things, they help in improving on-time deliveries, in reducing operating costs, in increasing customer satisfaction, or in optimizing transport. People love to use buzzwords in the tech industry, so check out our list of the top 10 technology buzzwords that you won’t be able to avoid in 2021. Days of inventory on-hold tells you the average amount of time it takes for you to sell your inventory … From the space your … 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. This KPI tells your ability to pay your obligations in the short-term, … It is one metric helpful to evaluate the overstock, that will also tell you whether your company is able to face unexpected situations. 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. Examples of your current liabilities are debt and account payables. Moreover, KPIs enable companies of all sizes to measure the impact of business operations. Therefore, tracking this internationally-renowned as well as a US inventory metric is critical for any industry that needs to respect international and local legal frameworks. Get instant access to the Ultimate Guide to Order Management when you subscribe to the SkuNexus blog. Inventory KPI examples couldn't be complete without the average time to sell. Inventory turns: The number of times a years all inventory is sold. We have here a good illustration of inventory management performed with the help of business intelligence and data visualization: the performance metrics that matter to the supply chain manager are tracked and displayed on a professional dashboard. Let’s take a look at each section individually in this inventory KPI list. They will also help you visualize easily your insights and communicate them in a meaningful way through inventory dashboards. 10 KPIs for Inventory Management to Watch in 2019 . Start monitoring ASAP, and if you find that some of your metrics are not where they should be, schedule a demo of our order management system to track your stock across your organization in a single inventory management KPI dashboard. 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. By using key performance indicators (KPIs) to track and manage inventory, businesses can improve purchasing and production processes, cash flow and profitability. 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… Improving something you can't measure is an exercise in frustration. KPIs … What it means: This KPI indicates whether or not your inventory is meeting customer demands. The 10 Essential SaaS Trends You Should Watch Out For In 2021, Top 10 Analytics And Business Intelligence Buzzwords For 2021, Top 10 IT & Technology Buzzwords You Won’t Be Able To Avoid In 2021, A-items: best-selling products with the highest priority. 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. 1. Our groundbreaking open source order management software will blow your mind. What it means: The stock to sales ratio will help you keep your inventory at optimum levels. Definition: Shows how well you stock products that customers demand. What it means: This KPI tells you the time period that it takes for your inventory to convert into sales. Formula: The time taken for received stock to be validated, added into inventory records, and be ready to put away. (We’ve probably read them all). It is good to optimize space, as well as streamline order fulfillment. Additional adjustments for retail inventory metrics should focus on the reasons behind slow processing, lower amounts of new orders, or higher inaccuracies. When your put-away process is efficient, your lead time is significantly lower. A higher ratio shows that you have either strong sales or it could indicate that you are giving customers large discounts. Efficient picking, packing, shipping of accurate orders on time will keep customers coming back. In an ideal scenario, the time to sell should be as low as possible. Inventory management software allows businesses to more effectively manage their KPIs … Your average inventory shouldn’t have unexplained drops or spikes. Key performance indicators (KPIs) in inventory management are metrics that help you monitor and make decisions about your stock. Need a permanent quality review and regular reordering. Now that we have gone over some metrics, let's have a look at how it looks like on real-world examples and dashboards. This is a KPI for inventory management that connects your business with your customers. 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… By utilizing advanced analytics solutions to measure such operational metrics, many of the manual work can be minimized. When the weeks of inventory on-hand is low, it means that your inventory is moving quickly and efficiently. Copyright © 2017 - 2020 SkuNexus LLC. The top sellers by orders will clearly show what items you need to have in your inventory so that your business and potential revenue doesn't get affected negatively and retail analytics software will help you automate your processes and track massive volumes of information, which is critical in this competitive industry. However, the optimum days to sell inventory varies depending on the industry you’re in. In this case, the point is to monitor this rate and identify when and what is missing. Examples of current assets are cash, inventory and accounts receivables. Cost of carry: Expenses associated with storing inventory, such as leasing, climate control, and administrative costs. What it means: This KPI indicates your performance in getting customers their orders within the time that you have specified. Measuring the warehousing costs is no piece of cake – this is why you should proceed to do it meticulously and not omit or forget any. Inventory … He should effectively collaborate with his peers to coordinate and guide processes together so that they get optimized inventory results. Share. When your on time order percentage is low, you will likely experience customer service issues and dissatisfied customers. These storage & inventory management KPIs are of immense value when it comes to maximizing storage utilization and reducing cost of inventory. Sales KPIs Events that cause inventory to be exhausted should be avoided at all costs, although it can happen that some products are not available due to numerous reasons. 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. Key performance indicators (KPIs) are a set of performance measurements that demonstrate how effectively an organization is achieving key objectives. The third is the most important, since data is useless without an actionable understanding of it. hbspt.cta._relativeUrls=true;hbspt.cta.load(4223538, 'f19a0038-6b07-4e4a-8d96-ab1cad58c037', {}); 13 Critical Inventory Management KPIs You've Got to Monitor. We can see the analysis expands throughout weeks and consider previously mentioned products: tobacco, personal care, household care, food, and beverages. 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. Keeping an eye on your orders' status in real-time will enable your team to act promptly to any potential negative occurrence. All this will help you figure out how to improve your processes and enhance efficiency. What it means: This KPI tells you how much you will spend (as a percentage) to hold and store your inventory annually. This metric is designed to avoid spikes or random drops in inventory and keep a relatively constant flow of stock in and out, based on the business’s needs. How accurately do you pull the correct items, in the correct quantities, to place into the appropriate shipping container? When the weeks on-hand is high, it means that your inventory is not moving efficiently, which results in a lower profitability due to storage fees and tied up capital. 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. By giving you clear milestones to hit every week, month, quarter, or year, they help greatly in eliminating the guesswork. 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. B-items: valuable but with a medium priority. 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. That way, you will be able to decrease the restocking and strive to achieve a higher number of new orders with the goal of keeping your business going. The increase in on-shelf availability can directly impact sales, and do it seriously. Last but not least, quality control is of utmost importance for any business, and should be implemented as early as possible. If you are not currently documenting and tracking your inventory KPIs regularly, your competition already has the jump on you. Monitoring Supply Chain KPIs … GMROI is a bit intimidating, but it is one of the most important metrics you can use in your store. One note before we get started: there are many, many articles out there describing key warehouse metrics. It is a good indicator when it comes to efficient production planning, process, marketing, and sales management. The Inventory Turnover KPI measures how many times a year your organization is able to sell its entire inventory. You can easily track KPIs using inventory … Definition: Total time taken during the entire process of each put-away task. 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. Very high values for this indicator are usually undesirable. All these challenges can be avoided by introducing appropriate inventory management KPIs. Success indicators. These KPIs are tied to the receiving of stock and may overlap with warehouse KPIs. This KPI helps you avoid spikes or unanticipated drops in inventory. Meeting customers' demands is critical in successfully managing your company's inventory, especially in the FMCG industry. If you dig deeper into the data on the left, you can immediately spot the exact time of the day where the inventory experiences the highest rates. Answers to these questions and more are essential to understanding all the aspects of your business and its continued growth. That way, you can see the development of each product and examine if there were certain spikes that would cause losing customers. To master the art inventory management, here are a few tips. But it’s essential to be able to put a quantifiable number in … To find more examples and templates, take a look at our other logistics dashboards. There are also human costs like labor, transport, and delivery that should not be forgotten. 4) Days of Inventory On-Hand (DOH) Formula: ( Average inventory / Cost of goods sold ) x 365. Let’s take a look at the 10 business intelligence buzzwords that will be present in the BI world in 2021. What it means: This KPI tells you how effective your put-away process is. To start with, a good technique for inventor management is to realize a hierarchy of your most valuable to least valuable items, by dollar value. Formula: There are two calculations that will show your Inventory Turnover Rate: Sales ÷ Average Inventory or Cost of Goods Sold ÷ Average Inventory. That some percentage you certainly do not want to miss, and yes customer loyalty is directly linked to your warehouse management and efficiency. Formula: (Cost of Recorded Inventory – Cost of Physical Inventory) ÷ Cost of Recorded Inventory. Average inventory – The average inventory KPI is used to estimate the inventory your company has on hand during the predefined time. The third is the most important, since data is useless without an actionable understanding of it. At the same time, inventory metrics are needed to help managers and professionals in reaching established goals, optimizing processes, and increasing business value. While inventory accuracy isfoundational and precedes this one, order filling accuracy is nevertheless a keystone of any successful operation. But you probably won’t—at least, not at first. 136 Key Performance Indicators Examples (The Complete List) Karola Karlson. The best metric for managing inventory strategies, the return reasons will help you to identify what kind of products in your inventory don't fit to customers, are damaged, or you simply delivered wrong items. Definition: A ratio that shows how many times inventory was sold and replaced during a specific time period. 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. If you sell large ticket items, they typically move slower than lower-priced products. How do you measure inventory performance? JIT means that you only buy what you need from a vendor when you get an order from a customer. That's why having online dashboard software that covers multiple touchpoints and enables retailers to have a clear overview of their inventory management is crucial in our consumer-faced world. What it means: This KPI tells you how your efficiently your inventory is moving. If you use correct key performance indicators (KPIs), it is easy to effectively manage your stock to ensure good cash flow, measure the impact of your inventory … Retail is another industry that heavily relies on inventory availability metrics and optimal management in order to increase revenue and profits. 4 MIN READ. 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. To see how you can benefit from BI software, simply try out our 14-day free trial! Formula: (Beginning Inventory + Ending Inventory) ÷ 2. While many are good, few of them do the one important thing: Organize those metrics in a way that is meaningful. Inventory Turnover Ratio. Inventory management KPIs … So far, we’ve mentioned a few examples of sales KPIs and metrics. These KPIs measure the effectiveness of operational costs, of which a large part is labor costs. We have explained what is inventory management performance, provided examples, best practices and finalized with dashboards where all those pieces can come together to tell an efficient story that will enable you to optimize your inventory management processes, and deliver invaluable results year after year. The higher the number the better. To calculate inventory turnover, use the following formula: Cost of Goods Sold ÷ Average inventory. The aim is to keep your inventory flow in and out, in a relatively consistent manner. “…KPIs … Overview. The lower, the closer a lean system is being used. 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. Try to keep this ration over 92% as much as possible. Simple and straightforward: you need to know what you have in stock and what is passing through your warehouse. Essential SaaS trends and insights for 2021 and beyond. 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. 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. For example, a low inventory turnover spurs you to track down a reason and helps you improve inventory … Definition: The percentage of the time that customers receive their orders on time. The above gives you a good start on which inventory management metrics you should be looking at, but ultimately, you need to determine which ones will make your operations more efficient, while keeping your customers happy. 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. Definition: The percentage of units sold during a specific time period. 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. The idea is to keep inventory flow (inventory in and out) consistent. Formula: (# of Items Returned) ÷ (Total # of Items Shipped). 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. In order to make the best decisions that will positively impact your business‘ bottom line, you need to have the full scope of your data. 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. 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. But to understand those aspects, you have to have some way of measuring the performance of different areas of your business. 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. Warehouse KPI Examples #3: Carrying costs The longer inventory stays in the warehouse, the more it costs a business. 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. 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. Knowing which inventory KPIs to monitor and understanding what they mean is critical to effectively managing your inventory. Retailers need data to effectively manage their restocking, and FMCG to bring fresh products and optimize processes every day. Definition: The ratio of stock available for sale versus the stock that has been sold. Reporting Frequency – Different KPIs may have different reporting needs, but a good rule to follow is to report on them at least monthly. As in general, not all your stock has equal value, this will help in focusing on the items that bring in the most money. Formula: Average Inventory ÷ Cost of Goods Sold x 52. This warehouse KPI evaluates the expenses involved in the management of your warehouse. It tells you how hard your inventory … Chapter 6 Inventory analysis: inventory management KPIs to improve performance. What it means: Your sell through rate tells you the percentage of your available inventory that actually sold. That way, you will be able to manage your inventory more effectively and avoid potential issues in the future, even before they arise. Which strategies are contributing to the increase in your sales and revenue? 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. Sample sales KPIs and metrics. 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. Inventory management KPIs are important because they are used to track warehouse performance and how inventory is ordered, managed, and commissioned. 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. 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. If you have too much inventory, you are tying up capital that could be better spent elsewhere. 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. Extracting, analyzing, monitoring and reacting to relevant inventory … 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). But before we dive into the full list of essential sales KPIs, we need to reiterate the golden rule: You don’t need to track every sales KPI… In the matter, data analysis and dashboard designer software is a precious ally. To make it easy, we’ve broken them down into three sections: sales, receiving, and operational KPIs. Definition: The percentage of inventory that is listed in records but is not physically in the actual inventory. When the number is high, it may indicate that your inventory movement is inefficient. If you dig deeper into the data on the left, you can … It is measured by dividing the available inventory for sale by the quantity that is actually sold. These numbers draft out a troubling scenario: most of the inventory management professionals are aware that the situation and their work could be improved, and that software could help – but they are not yet sure how to make it happen. When the rate is too low, it means you have too many units on-hand (you overstocked), or you priced too high. Some studies state that even just a 5% increase in customer retention will bring between 25 to 100% in profits across a wide range of industries. Formula: # of Orders Delivered On Time ÷ Total # of Orders. 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 fast you are selling your inventory. 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