What are the best Lean inventory performance metrics for your business?

1 Inventory Turnover Ratio

Inventory turnover ratio 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 by the average inventory value. A high inventory turnover ratio indicates that you are selling your inventory quickly and minimizing the holding costs. A low inventory turnover ratio suggests that you have excess or obsolete inventory that ties up your working capital and reduces your profitability. To improve your inventory turnover ratio, you need to align your inventory levels with your customer demand, implement accurate forecasting and replenishment methods, and eliminate any sources of waste or inefficiency in your inventory processes.

2 Days Inventory Outstanding

Days inventory outstanding (DIO) is a measure of how long it takes you to sell your inventory on average. It is calculated by dividing the average inventory value by the cost of goods sold and multiplying by the number of days in the period. A low DIO indicates that you are selling your inventory fast and generating cash flow. A high DIO implies that you are holding too much inventory and facing the risk of obsolescence, spoilage, or theft. To reduce your DIO, you need to optimize your inventory turnover ratio, as well as improve your inventory quality and visibility, and streamline your order fulfillment and delivery processes.

3 Inventory Accuracy

Inventory accuracy is a measure of how well your physical inventory matches your records. It is calculated by dividing the number of items that are correctly counted by the total number of items counted and multiplying by 100. A high inventory accuracy indicates that you have reliable and timely data on your inventory levels, locations, and movements. A low inventory accuracy suggests that you have errors or discrepancies in your inventory transactions, which can lead to stockouts, overstocks, or customer dissatisfaction. To increase your inventory accuracy, you need to implement regular and accurate inventory counts, use barcode or RFID technology to track your inventory, and establish clear and consistent inventory policies and procedures.

4 Fill Rate

Fill rate is a measure of how well you meet your customer demand with your available inventory. It is calculated by dividing the number of items that are shipped on time and in full by the total number of items ordered and multiplying by 100. A high fill rate indicates that you are delivering what your customers want, when they want it, and in the right quantity and quality. A low fill rate implies that you are losing sales opportunities, damaging your customer loyalty, and wasting your resources. To improve your fill rate, you need to enhance your inventory turnover ratio and accuracy, as well as align your inventory planning and purchasing with your customer expectations and preferences.

5 Inventory Carrying Cost

Inventory carrying cost is a measure of how much it costs you to hold and maintain your inventory. It includes the costs of storage, insurance, taxes, depreciation, obsolescence, and opportunity cost. It is calculated by adding up all these costs and dividing by the average inventory value. A low inventory carrying cost indicates that you are managing your inventory efficiently and effectively, and maximizing your return on investment. A high inventory carrying cost suggests that you are spending too much on your inventory and reducing your cash flow and profitability. To lower your inventory carrying cost, you need to reduce your inventory levels, improve your inventory quality and turnover, and optimize your inventory location and layout.

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?