What are the key inventory management metrics and KPIs that you track and report?

1 Inventory turnover ratio

This metric shows 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 products quickly and efficiently, while a low ratio suggests that you have excess or obsolete inventory that ties up your cash and storage space. You should aim for a balanced inventory turnover ratio that matches your industry standards and customer demand.

2 Inventory accuracy

This metric measures how well 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. A high inventory accuracy indicates that you have a reliable and consistent inventory management system, while a low accuracy suggests that you have errors, discrepancies, or thefts in your inventory. You should strive for a high inventory accuracy to avoid stockouts, overstocking, or misplacement of your products.

3 Fill rate

This metric shows how often you fulfill your customer orders completely and on time. It is calculated by dividing the number of orders shipped in full by the total number of orders placed. A high fill rate indicates that you have a high customer satisfaction and retention, while a low fill rate suggests that you have inventory shortages, delays, or quality issues. You should aim for a high fill rate to meet your customer expectations and avoid losing sales or reputation.

4 Inventory carrying cost

This metric shows how much it costs you to store and maintain your inventory. It is calculated by adding the costs of warehousing, insurance, taxes, depreciation, obsolescence, and opportunity cost, and dividing them by the average inventory value. A low inventory carrying cost indicates that you are minimizing your inventory expenses and maximizing your profits, while a high carrying cost suggests that you are wasting money and resources on your inventory. You should aim for a low inventory carrying cost by optimizing your inventory levels, storage conditions, and disposal methods.

5 Inventory days

This metric shows 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 inventory days indicates that you are selling your products fast and generating cash flow, while a high inventory days suggests that you are holding your inventory for too long and risking obsolescence or spoilage. You should aim for a low inventory days by aligning your inventory with your sales forecast and demand patterns.

6 Stockout rate

This metric shows how often you run out of inventory and cannot fulfill your customer orders. It is calculated by dividing the number of stockouts by the total number of orders placed. A low stockout rate indicates that you have a high inventory availability and service level, while a high stockout rate suggests that you have a poor inventory planning and replenishment process. You should aim for a low stockout rate by monitoring your inventory levels, lead times, and safety stocks.