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What are the most common inventory management metrics?

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Inventory management metrics are key indicators of how well you are managing your inventory levels, costs, and performance. They help you monitor and optimize your inventory processes, such as ordering, storing, replenishing, and selling. In this article, you will learn about the most common inventory management metrics, how to calculate them, and why they are important for transportation management.

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Andrew Kennedy

Logistics Manager at Kitagawa Europe Ltd.

1 Inventory Turnover

Inventory turnover is the ratio of the cost of goods sold (COGS) to the average inventory value. It measures how often you sell and replace your inventory in a given period, usually a year. A high inventory turnover indicates that you have efficient inventory management and high demand for your products. A low inventory turnover means that you have excess or obsolete inventory, low sales, or high holding costs. To calculate inventory turnover, divide COGS by the average inventory value, which is the sum of the beginning and ending inventory values divided by two.

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Andrew Kennedy

Logistics Manager at Kitagawa Europe Ltd.
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This metric measures how many times a company's inventory is sold and replaced over a specific period. A higher turnover ratio generally indicates efficient inventory management. Formula: Cost of Goods Sold (COGS) / Average Inventory Cost

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2 Inventory Accuracy

Inventory accuracy is the percentage of the physical inventory that matches the recorded inventory in your system. It reflects how well you track and update your inventory records, such as receipts, transfers, adjustments, and sales. A high inventory accuracy means that you have reliable data and minimal errors or discrepancies. A low inventory accuracy means that you have inaccurate or outdated data and potential losses or inefficiencies. To calculate inventory accuracy, divide the number of items that match the records by the total number of items counted, and multiply by 100.

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3 Fill Rate

Fill rate is the percentage of customer orders that are fulfilled from the available inventory. It measures how well you meet customer demand and satisfaction. A high fill rate means that you have sufficient inventory to satisfy customer orders without delays or backorders. A low fill rate means that you have insufficient inventory to meet customer demand, resulting in lost sales or customer dissatisfaction. To calculate fill rate, divide the number of items shipped by the number of items ordered, and multiply by 100.

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Andrew Kennedy

Logistics Manager at Kitagawa Europe Ltd.
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Fill rate measures the percentage of customer orders that can be shipped complete. A higher fill rate indicates better order fulfilment. Formula: (Number of Orders Shipped in Full / Total Number of Orders) x 100

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4 Days of Inventory

Days of inventory is the number of days it takes to sell your entire inventory, based on the average daily sales. It measures how long you hold your inventory before selling it. A low days of inventory indicates that you have fast-moving inventory and low holding costs. A high days of inventory means that you have slow-moving inventory and high holding costs. To calculate days of inventory, divide the average inventory value by the average daily sales.

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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 costs. It measures how much you spend on your inventory and how it affects your profitability. A low inventory carrying cost means that you have optimized your inventory levels and reduced your expenses. A high inventory carrying cost means that you have excess or unnecessary inventory and increased your expenses. To calculate inventory carrying cost, add up all the relevant costs and divide by the average inventory value, and multiply by 100.

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6 Economic Order Quantity

Economic order quantity (EOQ) is the optimal quantity of inventory to order at a given time, based on the trade-off between ordering costs and holding costs. It helps you minimize your total inventory costs and avoid overstocking or understocking. To calculate EOQ, use the following formula: EOQ = sqrt(2 x D x S / H), where D is the annual demand, S is the ordering cost per order, and H is the holding cost per unit per year.

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Andrew Kennedy

Logistics Manager at Kitagawa Europe Ltd.
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Economic Order Quantity (EOQ) is a formula used in inventory management to determine the optimal order quantity that minimises the total inventory holding costs and ordering costs. The goal of EOQ is to strike a balance between the costs associated with holding excess inventory and the costs associated with ordering too frequently or in bulk. EOQ = sqrt((2 * Demand * Ordering Cost) / Holding Cost) Where: *Demand is the annual demand for the product (in units). *Ordering Cost is the cost of placing an order. *Holding Cost per Unit is the cost of holding 1 unit for 1 year. EOQ is a good starting point for inventory management decisions, it's important to consider factors such as seasonality, variability in demand, and changes in costs.

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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?

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What are the most common inventory management metrics?

1

2

3

4

5

6

7

1 Inventory Turnover

2 Inventory Accuracy

3 Fill Rate

4 Days of Inventory

5 Inventory Carrying Cost

6 Economic Order Quantity

7 Here’s what else to consider

Transportation Management

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What are the most common inventory management metrics?

1

2

3

4

5

6

7

1 Inventory Turnover

2 Inventory Accuracy

3 Fill Rate

4 Days of Inventory

5 Inventory Carrying Cost

6 Economic Order Quantity

7 Here’s what else to consider

Transportation Management

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