inventory kpi examples

The third is the most important, since data is useless without an actionable understanding of it. 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. The inventory turnover looks at how many times, over a certain period, your entire inventory is sold. It tells you how hard your inventory … Inventory turns: The number of times a years all inventory is sold. While many are good, few of them do the one important thing: Organize those metrics in a way that is meaningful. 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. What it means: This KPI tells you how effective your put-away process is. 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. 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. To do that, you need to understand how to monitor the right key performance indicators (KPIs). You may start to recognize patterns and trends, but also bottlenecks and inconsistencies. If you sell large ticket items, they typically move slower than lower-priced products. In inventory management, KPIs matter because they offer information about turnover, sales, demand, costs, process success, relationships and more. This is one of the KPIs for inventory control that will provide you with useful information about your storing processes and give you more information on how to develop your procurement strategies. Other potential KPIs… 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. What it means: This KPI indicates your performance in getting customers their orders within the time that you have specified. What is it that is making your online store a success? Copyright © 2017 - 2020 SkuNexus LLC. The aim is to keep your inventory flow in and out, in a relatively consistent manner. Simple and straightforward: you need to know what you have in stock and what is passing through your warehouse. But it’s essential to be able to put a quantifiable number in … But not only, as analyzing this metric with the help of online business intelligence software will enable you to quickly examine where you can make changes in order to reduce costs (as the carrying costs are a large part of the total costs, as mentioned). Definition: A ratio that shows how many times inventory was sold and replaced during a specific time period. When the weeks of inventory on-hand is low, it means that your inventory is moving quickly and efficiently. Success indicators. We can see the analysis expands throughout weeks and consider previously mentioned products: tobacco, personal care, household care, food, and beverages. Let’s take a look at each section individually in this inventory KPI list. All this will help you figure out how to improve your processes and enhance efficiency. All Rights Reserved. To be successful in this position, it is important to have extended knowledge of the supply chain principles – but it is today equally important to have strong analytic skills. Try to keep this ration over 92% as much as possible. 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. 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. Examples of your current liabilities are debt and account payables. They will also help you visualize easily your insights and communicate them in a meaningful way through inventory dashboards. 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. Data consolidation and analysis is simple, thanks to the intuitive drag and drop interface. But you probably won’t—at least, not at first. 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. The Just in Time is another inventory management technique that helps with the cash flow management for retailers. 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. 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. 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 amount of inventory on-hand during a specific period of time. These costs can include warehousing costs, insurance, employee costs as well as damages of goods, rent, utilities, etc. Knowing which inventory KPIs to monitor and understanding what they mean is critical to effectively managing your inventory. Cost of carry: Expenses associated with storing inventory, such as leasing, climate control, and administrative costs. B-items: valuable but with a medium priority. Retail is another industry that heavily relies on inventory availability metrics and optimal management in order to increase revenue and profits. Average inventory – The average inventory KPI is used to estimate the inventory your company has on hand during the predefined time. Reporting Frequency – Different KPIs may have different reporting needs, but a good rule to follow is to report on them at least monthly. With the help of what we wrote above, you can choose the KPIs that fit best your business’ needs, and track them over time. 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. It’s often measured against the turnover rate of industry averages. 136 Key Performance Indicators Examples (The Complete List) Karola Karlson. 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. Monthly reordering is usually sufficient. For the purposes of this post, we’ll look at the important KPIs that relate to inventory management, and how to measure them. 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. 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. Definition: The percentage of the time that customers receive their orders on time. 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. This KPI answers the question: how effective is my inventory at generating cash flow and profits? Your average inventory shouldn’t have unexplained drops or spikes. GMROI is a bit intimidating, but it is one of the most important metrics you can use in your store. 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. C-items: low-priority stock, generally carried in high volumes and needing a minimal reordering. 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. 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. Inventory KPI examples couldn't be complete without the average time to sell. The higher the number the better. The lower, the closer a lean system is being used. At the same time, inventory metrics are needed to help managers and professionals in reaching established goals, optimizing processes, and increasing business value. This KPI tells your ability to pay your obligations in the short-term, … When your put-away process is efficient, your lead time is significantly lower. Key performance indicators (KPIs) are a set of performance measurements that demonstrate how effectively an organization is achieving key objectives. Definition: Shows how well you stock products that customers demand. They focus on a specific area and goals in order to spot trends and identify weaknesses. As a general rule of thumb: the higher, the better. 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. Chapter 6 Inventory analysis: inventory management KPIs to improve performance. It is one metric helpful to evaluate the overstock, that will also tell you whether your company is able to face unexpected situations. Definition: The percentage of shipped items that are returned to you. Formula: (# of Customer Orders Delayed due to Backorder ÷ Total # of Customer Orders Placed) x 100. If you are not currently documenting and tracking your inventory KPIs regularly, your competition already has the jump on you. What it means: This KPI tells you how your efficiently your inventory is moving. Monitoring Supply Chain KPIs … This KPI helps you avoid spikes or unanticipated drops in inventory. It is measured by dividing the quantity of items in inventory by the average daily demand. Improving something you can't measure is an exercise in frustration. Efficient picking, packing, shipping of accurate orders on time will keep customers coming back. How do you measure inventory performance? As in general, not all your stock has equal value, this will help in focusing on the items that bring in the most money. 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. What it means: The stock to sales ratio will help you keep your inventory at optimum levels. Definition: The average amount of time it takes to sell the inventory it holds. Formula: There are two calculations that will show your Inventory Turnover Rate: Sales ÷ Average Inventory or Cost of Goods Sold ÷ Average 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. “…KPIs … 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. A higher ratio shows that you have either strong sales or it could indicate that you are giving customers large discounts. What it means: This KPI tells you how much stock you have on average during a specific time frame. Days of inventory on-hold tells you the average amount of time it takes for you to sell your inventory … KPIs … Get instant access to the Ultimate Guide to Order Management when you subscribe to the SkuNexus blog. 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. Key performance indicator (KPI) is a measurable value that shows the progress of a company’s business goals. Formula: (# of Items Returned) ÷ (Total # of Items Shipped). To calculate your inventory turn ratio, divide the cost of sales by inventory. hbspt.cta._relativeUrls=true;hbspt.cta.load(4223538, 'f19a0038-6b07-4e4a-8d96-ab1cad58c037', {}); 13 Critical Inventory Management KPIs You've Got to Monitor. Keeping an eye on your orders' status in real-time will enable your team to act promptly to any potential negative occurrence. Besides, a satisfied customer often refers you to friends and relatives, an act much more powerful than any witty advertisement you can make. 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. Indeed, they help you drive the most effective behaviors, strategies, and decisions. When your on time order percentage is low, you will likely experience customer service issues and dissatisfied customers. What it means: This KPI tells you how fast you are selling your inventory. These KPIs measure the effectiveness of operational costs, of which a large part is labor costs. In this case, the point is to monitor this rate and identify when and what is missing. 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. 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