What are the most common inventory analysis tools?

1 ABC Analysis

ABC analysis is a tool that categorizes your inventory items into three groups based on their value and importance. The A group contains the most valuable and critical items that account for a large percentage of your inventory value but a small percentage of your inventory quantity. The B group contains the moderately valuable and important items that account for a moderate percentage of both your inventory value and quantity. The C group contains the least valuable and important items that account for a small percentage of your inventory value but a large percentage of your inventory quantity. By using ABC analysis, you can prioritize your inventory management activities and allocate your resources accordingly. For example, you can apply stricter control and monitoring to the A group, use standard policies and procedures for the B group, and apply minimal attention and effort to the C group.

2 EOQ Model

EOQ stands for economic order quantity, which is a tool that calculates the optimal order quantity that minimizes the total inventory costs. The total inventory costs include the ordering costs, which are the expenses associated with placing and receiving orders, and the holding costs, which are the expenses associated with storing and maintaining inventory. The EOQ model considers the demand rate, the ordering cost, and the holding cost per unit to determine the order quantity that results in the lowest total inventory costs. By using the EOQ model, you can reduce your inventory costs and avoid overstocking or understocking your inventory.

3 Safety Stock

Safety stock is a tool that determines the minimum level of inventory that you need to keep on hand to prevent stockouts. Stockouts are situations where you run out of inventory and cannot fulfill customer orders or production requirements. Stockouts can result in lost sales, dissatisfied customers, delayed deliveries, and lower profits. Safety stock acts as a buffer against unexpected fluctuations in demand or supply, such as spikes in customer orders, delays in supplier shipments, or quality issues. By using safety stock, you can improve your customer service, reduce your risk of stockouts, and increase your inventory availability.

4 Inventory Turnover Ratio

Inventory turnover ratio is a tool that measures how efficiently you use your inventory to generate sales. It is calculated by dividing the cost of goods sold by the average inventory value. The cost of goods sold is the amount of money you spend on purchasing or producing the goods that you sell. The average inventory value is the average amount of money you invest in holding your inventory. The inventory turnover ratio indicates how many times you sell and replace your inventory within a given period, such as a month, a quarter, or a year. By using the inventory turnover ratio, you can evaluate your inventory performance, compare your results with industry standards or competitors, and identify opportunities to improve your inventory management.

5 Inventory Dashboard

Inventory dashboard is a tool that displays and summarizes your inventory data and metrics in a visual and interactive way. It helps you track and analyze your inventory performance, identify trends and patterns, and make informed decisions. An inventory dashboard can include various elements, such as charts, graphs, tables, gauges, indicators, and filters, that show different aspects of your inventory, such as inventory levels, inventory costs, inventory turnover, inventory accuracy, inventory quality, and inventory optimization. By using an inventory dashboard, you can gain insights into your inventory situation, monitor your inventory goals, and take action to improve your inventory management.

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?