What are the best inventory management metrics for eliminating waste and inefficiency?

1 Stock Keeping Unit (SKU)

A stock keeping unit (SKU) is a unique identifier for each product or variant in your inventory. It helps you track the quantity, location, and movement of each item, and enables you to analyze sales, demand, and profitability by SKU. By using SKUs, you can optimize your inventory assortment, reduce overstocking and understocking, and avoid duplication and confusion. You can also segment your inventory by different attributes, such as size, color, price, or season, and apply different strategies for each segment.

2 Inventory Turnover Ratio (ITR)

Inventory turnover ratio (ITR) is a measure of how often you sell and replace your inventory in a given period. It is calculated by dividing the cost of goods sold (COGS) by the average inventory value. A high ITR indicates that you are selling your inventory quickly and efficiently, while a low ITR suggests that you have excess or obsolete inventory that ties up your cash flow and storage space. You can use ITR to compare your performance with industry benchmarks, identify slow-moving or dead stock, and adjust your ordering and pricing policies accordingly.

3 Inventory Accuracy (IA)

Inventory accuracy (IA) is a measure of how closely your physical inventory matches your records in your inventory management system. It is calculated by dividing the number of correct inventory counts by the total number of inventory counts, and multiplying by 100%. A high IA indicates that you have a reliable and updated view of your inventory levels and locations, while a low IA implies that you have errors or discrepancies that can lead to stockouts, overstocking, or customer complaints. You can use IA to evaluate the effectiveness of your inventory counting and auditing methods, and identify the sources and causes of errors.

4 Fill Rate (FR)

Fill rate (FR) is a measure of how well you fulfill customer orders from your available inventory. It is calculated by dividing the number of items or orders shipped by the number of items or orders requested, and multiplying by 100%. A high FR indicates that you have a high customer satisfaction and retention rate, while a low FR suggests that you have a poor inventory availability or allocation. You can use FR to assess the impact of your inventory management on your customer service, and optimize your inventory planning and replenishment processes.

5 Inventory Shrinkage (IS)

Inventory shrinkage (IS) is a measure of how much inventory you lose due to theft, damage, spoilage, or error. It is calculated by subtracting the actual inventory value from the book inventory value, and dividing by the book inventory value. A low IS indicates that you have a tight inventory control and security, while a high IS implies that you have a significant inventory waste and loss. You can use IS to quantify the cost of inventory shrinkage, and implement preventive and corrective actions to reduce it.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?