What are the key performance indicators for inventory accuracy and how do you measure them?

1 Cycle counting

One of the most common and effective ways to measure inventory accuracy is cycle counting, which is a process of regularly counting a subset of your inventory items and comparing them with your records. Cycle counting helps you identify and correct any discrepancies, errors, or shrinkage in your inventory, as well as monitor the accuracy of your inventory management system. Cycle counting can be done based on different criteria, such as item value, frequency of movement, location, or category.

2 Inventory turnover

Another important KPI for inventory accuracy is inventory turnover, which is the ratio of how many times your inventory is sold or used in a given period. Inventory turnover indicates how well you are managing your inventory levels, demand forecasting, and replenishment. A high inventory turnover means that you are selling or using your inventory quickly and efficiently, while a low inventory turnover means that you have excess or obsolete inventory that ties up your capital and space. You can calculate inventory turnover by dividing your cost of goods sold by your average inventory value.

3 Fill rate

Fill rate is a measure of how well you are fulfilling your customer orders with the available inventory. Fill rate is the percentage of items or orders that you can ship or deliver from your current inventory, without backordering or substituting. Fill rate reflects your inventory availability, customer service, and order accuracy. A high fill rate means that you are meeting your customer expectations and demand, while a low fill rate means that you are losing sales and customer loyalty due to stockouts or delays. You can calculate fill rate by dividing the number of items or orders shipped or delivered by the number of items or orders requested.

4 Inventory accuracy percentage

Inventory accuracy percentage is a simple and straightforward KPI that shows the percentage of your inventory items that match your records. Inventory accuracy percentage is a direct indicator of the quality and reliability of your inventory data and system. A high inventory accuracy percentage means that you have a clear and accurate picture of your inventory status and availability, while a low inventory accuracy percentage means that you have a lot of uncertainty and risk in your inventory management. You can calculate inventory accuracy percentage by dividing the number of items that match your records by the total number of items counted.

5 Inventory shrinkage

Inventory shrinkage is the difference between your physical inventory and your recorded inventory, due to factors such as theft, damage, loss, misplacement, or miscounting. Inventory shrinkage is a major source of inventory inaccuracy and cost, as it reduces your inventory value, profitability, and customer satisfaction. Inventory shrinkage can be measured by subtracting your physical inventory from your recorded inventory, and dividing it by your recorded inventory.

6 Inventory carrying cost

Inventory carrying cost is the total cost of holding and maintaining your inventory, including storage, handling, insurance, taxes, depreciation, obsolescence, and opportunity cost. Inventory carrying cost is a significant factor that affects your inventory accuracy and profitability, as it represents the trade-off between having enough inventory to meet demand and having too much inventory that consumes resources and space. Inventory carrying cost can be calculated by adding up all the relevant costs and dividing them by your average inventory value.

7 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?