What it means: This KPI tells you how your efficiently your inventory is moving. They will also help you visualize easily your insights and communicate them in a meaningful way through inventory dashboards. In this case, the point is to monitor this rate and identify when and what is missing. (We’ve probably read them all). But let's get back to our visual example. 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. GMROI is a bit intimidating, but it is one of the most important metrics you can use in your store. Formula: The time taken for received inventory to be put away and ready to pick. Now that we have gone over some metrics, let's have a look at how it looks like on real-world examples and dashboards. Sample sales KPIs and metrics. Inventory Management KPIs to Track. You may start to recognize patterns and trends, but also bottlenecks and inconsistencies. 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. To do that, you need to understand how to monitor the right key performance indicators (KPIs). Definition: The ratio of stock available for sale versus the stock that has been sold. What it means: This KPI indicates your performance in getting customers their orders within the time that you have specified. To see how you can benefit from BI software, simply try out our 14-day free trial! To make it easy, we’ve broken them down into three sections: sales, receiving, and operational KPIs. Formula: The time taken for received stock to be validated, added into inventory records, and be ready to put away. Inventory turnover is an important indicator of the efficiency of your supply chain, the quality and demand of the inventory … Formula: Average Inventory ÷ Cost of Goods Sold x 52. Formula: Units sold ÷ (Units sold + On-hand inventory). In short, be mindful of your carrying costs. Formula: (Beginning Inventory + Ending Inventory) ÷ 2. That way, you can see the development of each product and examine if there were certain spikes that would cause losing customers. They focus on a specific area and goals in order to spot trends and identify weaknesses. 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. Moreover, KPIs enable companies of all sizes to measure the impact of business operations. To calculate your inventory turn ratio, divide the cost of sales by inventory. 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. Definition: A ratio that shows how many times inventory was sold and replaced during a specific time period. The third is the most important, since data is useless without an actionable understanding of it. What it means: This KPI tells you the time period that it takes for your inventory to convert into sales. These KPIs measure the effectiveness of operational costs, of which a large part is labor costs. 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. KPIs not only provide an … If you sell large ticket items, they typically move slower than lower-priced products. To master the art inventory management, here are a few tips. Last but not least, quality control is of utmost importance for any business, and should be implemented as early as possible. It is one metric helpful to evaluate the overstock, that will also tell you whether your company is able to face unexpected situations. When your on time order percentage is low, you will likely experience customer service issues and dissatisfied customers. 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. By Sandra Durcevic in KPIs, Aug 20th 2020. Definition: The percentage of shipped items that are returned to you. A higher ratio shows that you have either strong sales or it could indicate that you are giving customers large discounts. 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. The higher the number the better. But you probably won’t—at least, not at first. Keeping an eye on your orders' status in real-time will enable your team to act promptly to any potential negative occurrence. Formula: (Cost of Recorded Inventory – Cost of Physical Inventory) ÷ Cost of Recorded Inventory. To calculate inventory turnover, use the following formula: Cost of Goods Sold ÷ Average inventory. 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. Success indicators. Definition: Total time taken during the entire process of each put-away task. 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. That way, you will be able to manage your inventory more effectively and avoid potential issues in the future, even before they arise. It is good to optimize space, as well as streamline order fulfillment. Monitoring Supply Chain KPIs … Get instant access to the Ultimate Guide to Order Management when you subscribe to the SkuNexus blog. Examples of current assets are cash, inventory and accounts receivables. 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. 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. 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. Inventory management KPIs are important because they are used to track warehouse performance and how inventory is ordered, managed, and commissioned. 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… Your average inventory shouldn’t have unexplained drops or spikes. If you have too much inventory, you are tying up capital that could be better spent elsewhere. Average inventory – The average inventory KPI is used to estimate the inventory your company has on hand during the predefined time. It’s often measured against the turnover rate of industry averages. Definition: The percentage of units sold during a specific time period. Benefiting from the numerous advantages data analysis tools provide will make you stand out of the crowd, and ultimately increase your efficiency even more. 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. “…KPIs … These KPIs are tied to the receiving of stock and may overlap with warehouse KPIs. Besides, a satisfied customer often refers you to friends and relatives, an act much more powerful than any witty advertisement you can make. What it means: This KPI tells you how much stock you have on average during a specific time frame. All these challenges can be avoided by introducing appropriate inventory management KPIs. Definition: Shows how well you stock products that customers demand. Need a permanent quality review and regular reordering. 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. Inventory Turnover Ratio. As in general, not all your stock has equal value, this will help in focusing on the items that bring in the most money. Extracting, analyzing, monitoring and reacting to relevant 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. 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. What it means: Your sell through rate tells you the percentage of your available inventory that actually sold. 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. A lower back order rate means that you are experiencing slow order cycle times and that you run the risk of customers being dissatisfied. It is a good indicator when it comes to efficient production planning, process, marketing, and sales management. What it means: This KPI tells you how fast you are selling your inventory. Inventory … With them, you get the data you need to make strategic and better-informed decisions that will positively impact your business. The lower, the closer a lean system is being used. Want to visualize & track inventory KPIs with ease? 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 … 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. 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. So far, we’ve mentioned a few examples of sales KPIs and metrics. In inventory management, KPIs matter because they offer information about turnover, sales, demand, costs, process success, relationships and more. While inventory accuracy isfoundational and precedes this one, order filling accuracy is nevertheless a keystone of any successful operation. This KPI helps you avoid spikes or unanticipated drops in inventory. Definition: The amount of inventory on-hand during a specific period of time. Now that we’ve reviewed the basic anatomy of a KPI, here are 27 examples of common KPI sources we see organizations use to measure the performance of their plans: Examples of Sales KPIs A low or dropping inventory to sales ratio. Try to keep this ration over 92% as much as possible. This warehouse KPI evaluates the expenses involved in the management of your warehouse. Our groundbreaking open source order management software will blow your mind. 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. The idea is to keep inventory flow (inventory in and out) consistent. Retail is another industry that heavily relies on inventory availability metrics and optimal management in order to increase revenue and profits. Formula: (Average Inventory ÷ Cost of Sales) x 365. Days of inventory on-hold tells you the average amount of time it takes for you to sell your inventory … Reporting Frequency – Different KPIs may have different reporting needs, but a good rule to follow is to report on them at least monthly. We can see the analysis expands throughout weeks and consider previously mentioned products: tobacco, personal care, household care, food, and beverages. All this will help you figure out how to improve your processes and enhance efficiency. 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. Definition: How long it takes to turn your inventory into sales. 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. However, the optimum days to sell inventory varies depending on the industry you’re in. These storage & inventory management KPIs are of immense value when it comes to maximizing storage utilization and reducing cost of inventory. With the help of what we wrote above, you can choose the KPIs that fit best your business’ needs, and track them over time. Inventory Management KPI Examples Every organization has unique business goals and therefore, uses their own set of inventory KPIs. If you are not currently documenting and tracking your inventory KPIs regularly, your competition already has the jump on you. Ordering, storing, loading the goods of your inventory – all this needs money to be executed properly. Why is GMROI useful? Key performance indicators (KPIs) in inventory management are metrics that help you monitor and make decisions about your stock. He should effectively collaborate with his peers to coordinate and guide processes together so that they get optimized inventory results. 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). 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. 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. 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. For example, a low inventory turnover spurs you to track down a reason and helps you improve inventory … The inventory manager has a lot of responsibilities and must act as an air traffic controller. Definition: The average amount of time it takes to sell the inventory it holds. Your business will best benefit from JIT if you are an eCommerce company, or if you build customized products such as jewelry, furniture, luxury cars, etc; but also as a service-based business (events, food, garage, etc). Once it is done, it smoothens the overall management and adds value, which is often is appreciated by senior management and investors. Answers to these questions and more are essential to understanding all the aspects of your business and its continued growth. Indeed, they help you drive the most effective behaviors, strategies, and decisions. As we have seen all along this article, inventory management is not something that is limited solely to warehouses; manufacturing companies need data on trends (seasonal information, price point, buying behaviors and patterns, etc) to make sure they always have enough for retailers. 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. 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. Advisors and business owners can adopt several universally accepted inventory management ratios and KPIs (Key Performance Indicators) to help them monitor business.. 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. The inventory turnover looks at how many times, over a certain period, your entire inventory is sold. 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. The Inventory Turnover KPI measures how many times a year your organization is able to sell its entire inventory. If you spot inefficiencies in your supply chain, it will affect your inventory, and, consequently, the overall business. 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. 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. 136 Key Performance Indicators Examples (The Complete List) Karola Karlson. Inventory management software allows businesses to more effectively manage their KPIs … 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. How accurately do you pull the correct items, in the correct quantities, to place into the appropriate shipping container? It tells you how hard your inventory … Definition: The percentage of inventory that is listed in records but is not physically in the actual inventory. 1. You can easily track KPIs using inventory … 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. Definition: The percentage representing cents per dollar that is spent on inventory overhead each year. hbspt.cta._relativeUrls=true;hbspt.cta.load(4223538, 'f19a0038-6b07-4e4a-8d96-ab1cad58c037', {}); 13 Critical Inventory Management KPIs You've Got to Monitor. 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. 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. Chapter 6 Inventory analysis: inventory management KPIs to improve performance. 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… 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. These costs can include warehousing costs, insurance, employee costs as well as damages of goods, rent, utilities, etc. Especially in online retailing, where consumers can access massive amounts of products with a few clicks. We will finish by presenting a business dashboard that will show how those metrics work together when depicting an inventory data-story. What it means: This KPI tells you how much you will spend (as a percentage) to hold and store your inventory annually. This is a KPI for inventory management that connects your business with your customers. schedule a demo of our order management system, Increase Automation to Reduce Human Error. 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. Simple and straightforward: you need to know what you have in stock and what is passing through your warehouse. Definition: The percentage of the time that customers receive their orders on time. Formula: There are two calculations that will show your Inventory Turnover Rate: Sales ÷ Average Inventory or Cost of Goods Sold ÷ Average Inventory. Formula: (# of Customer Orders Delayed due to Backorder ÷ Total # of Customer Orders Placed) x 100. 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. 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: (# of Items Returned) ÷ (Total # of Items Shipped). What it means: This KPI tells you how effective your put-away process is. This inventory KPI is also oriented towards finances. Inventory management KPIs … 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. All Rights Reserved. Inventory metrics example actual vs target KPIs report . Cost of carry: Expenses associated with storing inventory, such as leasing, climate control, and administrative costs. When the number is high, it may indicate that your inventory movement is inefficient. When your turnover rate is low, it indicates you have weak sales and excess inventory. Key performance indicator (KPI) is a measurable value that shows the progress of a company’s business goals. 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. 10 KPIs for Inventory Management to Watch in 2019 . Conversely, if you have too little stock, you may run out, which is the number one thing not to do for retailers. There are numerous KPIs that you can track in different areas of your business. The third is the most important, since data is useless without an actionable understanding of it. 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. 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. It is measured by dividing the quantity of items in inventory by the average daily demand. Let’s be honest: It would be great if you tracked all of these metrics. KPIs … 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. 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. Monthly reordering is usually sufficient. What it means: This KPI indicates whether or not your inventory is meeting customer demands. Overview. By using key performance indicators (KPIs) to track and manage inventory, businesses can improve purchasing and production processes, cash flow and profitability. By utilizing advanced analytics solutions to measure such operational metrics, many of the manual work can be minimized. At the same time, inventory metrics are needed to help managers and professionals in reaching established goals, optimizing processes, and increasing business value. If tracking inventory is important to you (it should be) get a demo of the SkuNexus platform to see our unique approach to dashboards. Data consolidation and analysis is simple, thanks to the intuitive drag and drop interface. Nonetheless, some common KPIs serve the … Copyright © 2017 - 2020 SkuNexus LLC. These are just a few examples of key performance indicators for inventory … That some percentage you certainly do not want to miss, and yes customer loyalty is directly linked to your warehouse management and efficiency. In an ideal scenario, the time to sell should be as low as possible. This number reflects how often inventory is sold and replaced within a predefined time period—typically a year. Examples of your current liabilities are debt and account payables. When an item doesn’t match the company’s quality standards, they will return them to the supplier, and reduce the stock levels. 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. 4 MIN READ. Definition: How efficient your process for receiving stock is. 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. If you can’t get your orders right,customers won… Let’s take a look at the 10 business intelligence buzzwords that will be present in the BI world in 2021. While many are good, few of them do the one important thing: Organize those metrics in a way that is meaningful. 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. Let’s take a look at each section individually in this inventory KPI list. This makes sense since food and beverages have shorter freshness longevity and they need to be replaced more often than appliances, for example. When the weeks of inventory on-hand is low, it means that your inventory is moving quickly and efficiently. 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. How do you measure inventory performance? This metric will also help spot issues related to shipping, receiving, or accounting. C-items: low-priority stock, generally carried in high volumes and needing a minimal reordering. The increase in on-shelf availability can directly impact sales, and do it seriously. B-items: valuable but with a medium priority. From the space your … Other potential KPIs… The Just in Time is another inventory management technique that helps with the cash flow management for retailers. This KPI tells your ability to pay your obligations in the short-term, … Knowing which inventory KPIs to monitor and understanding what they mean is critical to effectively managing your inventory. When the rate is too high, it may mean that you have too little inventory, or you priced too low. 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). By giving you clear milestones to hit every week, month, quarter, or year, they help greatly in eliminating the guesswork. 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. Essential SaaS trends and insights for 2021 and beyond. 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. 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. 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. 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. Meeting customers' demands is critical in successfully managing your company's inventory, especially in the FMCG industry. 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. In the matter, data analysis and dashboard designer software is a precious ally. You can calculate it by dividing the costs of goods sold by the average inventory. This is something you can measure with a customer service KPI like the net promoter score or NPS, that evaluates the power of your referral. Very high values for this indicator are usually undesirable. Improving something you can't measure is an exercise in frustration. 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. What it means: The stock to sales ratio will help you keep your inventory at optimum levels. For example, if you have a higher percentage of orders that are canceled, it would make sense to examine why. If you dig deeper into the data on the left, you can … Inventory KPI examples couldn't be complete without the average time to sell. 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. Inventory metrics are indicators that help you monitor, measure, and assess your performance – and thus, give you some keys to optimize your processes as well as improve them.