What are the most effective inventory control metrics for the food and beverage industry?

1 Inventory turnover ratio

Inventory turnover ratio (ITR) is the number of times your inventory is sold or used in a given period, usually a year. It indicates how efficiently you are managing your inventory and how fast you are generating sales. A high ITR means you have low inventory holding costs, high demand, and good cash flow. A low ITR means you have excess inventory, low demand, and poor cash flow. To calculate ITR, divide your cost of goods sold by your average inventory value. The optimal ITR depends on your industry, product type, and market conditions, but generally, you want to aim for a higher ITR than your competitors.

2 Days on hand

Days on hand (DOH) is the number of days it takes to sell or use your current inventory. It is the inverse of ITR and shows how long your inventory stays in your warehouse before it is sold or consumed. A low DOH means you have high inventory turnover, low inventory holding costs, and high customer satisfaction. A high DOH means you have low inventory turnover, high inventory holding costs, and low customer satisfaction. To calculate DOH, divide your average inventory value by your cost of goods sold and multiply by 365. The optimal DOH depends on your industry, product type, and market conditions, but generally, you want to aim for a lower DOH than your competitors.

3 Fill rate

Fill rate is the percentage of customer orders that are fulfilled from your available inventory without any backorders or stockouts. It measures how well you are meeting customer demand and how reliable your inventory management is. A high fill rate means you have high customer satisfaction, loyalty, and retention. A low fill rate means you have low customer satisfaction, loyalty, and retention. To calculate fill rate, divide the number of orders fulfilled by the number of orders placed and multiply by 100. The optimal fill rate depends on your industry, product type, and customer expectations, but generally, you want to aim for a fill rate of 95% or higher.

4 Inventory accuracy

Inventory accuracy is the degree of match between your physical inventory and your inventory records. It reflects how well you are tracking and updating your inventory data and how reliable your inventory information is. A high inventory accuracy means you have low inventory errors, discrepancies, and shrinkage. A low inventory accuracy means you have high inventory errors, discrepancies, and shrinkage. To calculate inventory accuracy, divide the number of items that match your inventory records by the total number of items counted and multiply by 100. The optimal inventory accuracy depends on your industry, product type, and inventory system, but generally, you want to aim for an inventory accuracy of 98% or higher.

5 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. It represents the trade-off between having enough inventory to meet customer demand and having too much inventory that incurs unnecessary expenses. A low inventory carrying cost means you have optimized your inventory levels, reduced your inventory waste, and improved your profitability. A high inventory carrying cost means you have overstocked your inventory, increased your inventory waste, and reduced your profitability. To calculate inventory carrying cost, add up all the costs associated with your inventory and divide by your average inventory value. The optimal inventory carrying cost depends on your industry, product type, and market conditions, but generally, you want to aim for a lower inventory carrying cost than your competitors.