How accurate are your inventory records and forecasts?

1 Inventory accuracy

Inventory accuracy is the degree to which your physical inventory matches your records in your system. It reflects how well you manage your inventory counts, adjustments, and audits. A low inventory accuracy can lead to stockouts, excess inventory, lost sales, customer dissatisfaction, and wasted resources. To measure your inventory accuracy, you can use the following formula: Inventory accuracy = (Total items counted correctly / Total items counted) x 100% The higher the percentage, the better your inventory accuracy. A common benchmark is to aim for at least 95% inventory accuracy. To improve your inventory accuracy, you can implement regular cycle counts, barcode scanning, automated data entry, and inventory reconciliation.

2 Inventory turnover

Inventory turnover is the ratio of how many times you sell and replace your inventory in a given period. It indicates how efficiently you manage your inventory levels and cash flow. A high inventory turnover means you have a high demand for your products and a low holding cost. A low inventory turnover means you have a slow-moving inventory and a high risk of obsolescence. To calculate your inventory turnover, you can use the following formula: Inventory turnover = Cost of goods sold / Average inventory The higher the number, the better your inventory turnover. A common benchmark is to compare your inventory turnover with your industry average or your competitors. To improve your inventory turnover, you can optimize your pricing, promotion, and ordering strategies, as well as reduce your lead times and inventory shrinkage.

3 Inventory forecasting

Inventory forecasting is the process of estimating the future demand and supply of your products. It helps you plan your inventory levels, purchasing, production, and distribution activities. A good inventory forecast can help you avoid stockouts, overstocking, and missed opportunities. A poor inventory forecast can result in lost sales, customer dissatisfaction, and wasted resources. To evaluate your inventory forecasting, you can use the following metrics: Forecast accuracy = 1 - (Absolute value of (Actual demand - Forecasted demand) / Actual demand) Forecast bias = (Actual demand - Forecasted demand) / Actual demand The higher the forecast accuracy, the better your inventory forecasting. A common benchmark is to aim for at least 80% forecast accuracy. The closer the forecast bias to zero, the more unbiased your inventory forecasting. A positive forecast bias means you overestimate your demand, while a negative forecast bias means you underestimate your demand. To improve your inventory forecasting, you can use historical data, market trends, seasonal patterns, and statistical methods, as well as update and review your forecasts regularly.

Inventory management is a complex and dynamic skill that requires constant monitoring and improvement. By measuring and improving your inventory accuracy, turnover, and forecasting, you can enhance your operational efficiency, customer satisfaction, and profitability.

4 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?