What are the best KPIs for evaluating inventory management in E-Commerce?

I would say that the Sell-Through Rate (Units Sold/Initial Inventory) x 100, is a pivotal metric for e-commerce businesses. It reveals product demand, aiding in anticipating market trends. A high rate signifies strong market appetite, whereas a low rate prompts reevaluation of product relevance or marketing strategy. Essentially, it's a clear gauge of inventory efficiency, guiding stocking decisions, pricing, and promotional activities, ensuring both financial health and customer satisfaction.

Another perspective to review and associate the inventory turnover ratio with inventory management is by calculating the sell-through analysis. This metric can help you with accurate inventory forecasts for any given time period. However, considering the industry, product type, and business model, this analysis can be adopted with several other factors that may influence the overall inventory movement.

A Closely related, but distinct metric turnover is "Days Inventory". Days in inventory is an efficiency ratio that measures the average number of days the company holds its inventory before selling it. The ratio measures the number of days funds are tied up in inventory. In my business strive for turnover ratios of 4.0 or less, meaning the inventory value turns over four times per year or once a quarter. This ratio would correspond to a Days Inventory of 90.

Absolutely, the inventory turnover ratio provides crucial insights into sales effectiveness. But beyond just understanding the balance of stock, it's also essential to assess seasonal trends. For instance, certain products might have higher turnover during holidays, and understanding these patterns can allow for more precise inventory forecasting. Additionally, consider the lead time for restocking. A high turnover is great, but if the restocking time is long, it might lead to stockouts.

The best KPIs for evaluating inventory management in e-commerce are those that tell you how quickly you're selling your products, how often you're running out of stock, and how much money you're making from your inventory investment. By tracking these KPIs, you can make sure that you have enough inventory to meet customer demand, that you're not overstocking and losing money on storage costs, and that you're pricing your products correctly.

In my experience, this is the single most important (fundamentals!) and yet most overlooked KPI. There’s no biggest customer disappointment than having to explain to them post transaction that the inventory was not there! It is far better to rather show OOS (and not let the customer proceed to purchase & pay etc) than to waste their time and cause them the inconvenience it is to have to get refunded. Depending on your type of product, and the velocity of your sales decide on a minimum inventory under which you flag the product OOS online (although maybe in fact some pieces are there in the stock house) until you replenish the stock.

A high level of inventory accuracy is pivotal to maintain operational harmony. But even with the most sophisticated systems, human error can be a factor. Regular training and workshops for the team handling inventory can reduce these errors. Integrating technologies like IoT can also provide real-time inventory monitoring, further enhancing accuracy. Another point to consider is the frequency of reconciliations. Regular smaller checks rather than infrequent large audits can keep your accuracy consistently high.

Inventory accuracy is unquestionably a paramount Key Performance Indicator (KPI) of e-commerce inventory management systems. It signifies far more than just the efficacy of your internal system in handling products; but also the synchronization of inventory data across various systems without any discrepancies, which becomes even more pivotal when both systems employ reservation mechanisms for quantities. In my experience, the significance of high inventory accuracy extends beyond the confines of an individual system. It transcends the intricacies of integrating systems, ensuring product quantities are consistently and accurately reflected across multiple platforms.

Inventory accuracy also helps to ship orders fast. Because of inaccurate inventory and if there is no proper exception management in the warehouse, order processing slows down even when the picker or packing person does not have the item on hand.

This one here is vital as merchants oftentimes fail to distinguish their paid campaigns depending on their stock availabilities, and they often spend their budgets to land consumers on product pages where a product is out of stock. This causes a leaky bucket situation.

While this KPI gives us a good understanding of the storage costs, it's also worth considering the costs associated with expired or obsolete goods, especially for perishable items. Sometimes, a higher holding cost might be a result of inefficiencies in the supply chain. Looking into just-in-time (JIT) inventory management or dropshipping might be alternative solutions for certain businesses.

Don't just look at fill rate ... look at fill rate in comparison to your best items vs slower movers. Take your items and split them out into deciles and then look at how each decile looks from a fill rate perspective.

Indeed, the fill rate is a direct reflection of customer satisfaction in many scenarios. But an added layer to this is understanding the reasons behind a sub-optimal fill rate. Is it because of a mismatch in demand forecasting, supply chain disruptions, or perhaps last-mile delivery challenges? Sometimes, external factors like global logistics slowdowns or customs clearances might play a role. Diversifying suppliers or considering local vendors for certain items might improve this KPI.

I agree, but again this is not an eCommerce Inventory KPI per se, but an important one for all sales channels. Yet in the eCommerce context, measuring gross margin ROI accurately is indeed trickier that other more traditional and linear channels. The general unpredictability of sales Velocity, delivery costs, returns costs and all various costs that kick in between require either a very rigorous data gathering process or a highly trained data model to accurately keep track of that.

GMROI provides a clear picture of inventory profitability. To add more depth to this, consider segmenting GMROI by product category or even individual SKU. This granular view can highlight underperforming products that might be dragging down overall GMROI. Sometimes, bundling slow-moving products with fast-moving ones can be a strategy to improve their individual GMROI.

When distributing your products through online retailers, it's crucial to recognize that having physical inventory on their shelves doesn't always equate to online availability. This discrepancy hinges largely on the technological capabilities of the retailer. While powerhouses like Walmart and Amazon seamlessly synchronize physical and online availability, other retailers present an opportunity in this area. Hence, tracking online availability, alongside monitoring physical inventory at the retailer, becomes paramount. After all, regardless of how finely-tuned your eComm operations are, if the shopper can't make that online purchase, sales opportunities remain untapped.

Consider your transportation supply chain in inventory location decisions. I.e. could you reduce total landed cost by positioning the inventory closer to your customers, or to your suppliers?

There is no single correct answer to this. This will depend on factors like type of inventory, environment, economic factors, labor cost, cost of holding etc. Example - For Walmart, service levels matter the most. This means the inventory needs to be closes to the customer, ready to be delivered ASAP. Electronics and manufacturing firms will want to maintain inventory closer to the suppliers. This is to ensure products with higher lead times are taken care of.

Look at inventory in stages of availability. Stage 1: Total Inventory (includes on-hand plus incoming) Stage 2: On-hand Stage 3: Adjusted on-hand (subtract unfulfilled customer orders) Stage 4: Incoming Even better, is using these metrics to calculate a forward-looking Weeks of Supply estimate. Example: Assume the forecast for the next 6-weeks combined is 6k units (an avg of 1k), Total inventory is 18,000, On hand is 9,000, Adjusted on hand is 6,000, Incoming is 9,000. Total inventory WOS = 18 weeks On hand WOC = 9 weeks Adj on hand = 6 weeks Incoming is 9 weeks Depending on your WOS target, these metrics indicate current and future inventory health and can guide action to prevent an imbalance. You can now evaluate if

Other best KPIs for evaluating inventory management in e-commerce. Rate of Return - If many customers return items, it might mean problems with the product or its description. Supplier Lead Time - If suppliers take less time to deliver, it can reduce extra stock and storage costs. Order Cycle Time - If orders are completed faster, it shows the inventory and orders are managed well.