LEVERAGING LOGISTICS TO DRIVE PERFOEMANCE - INVENTORY KPIs:

There’s nothing more critical than forecasting accuracy. Real-time visibility into inventory levels and demand signals helps brands make more informed, up-to-the-moment forecasting decisions. Measuring inventory KPIs help brands optimize to improve overall inventory and order management.

#.Inventory KPIs fall into three categories:

Sales inventory,

Receiving inventory

Operational stock

#.Here are some of the most critical ones to improve across these buckets:

1. Inventory Turnover Ratio:

One of the essential inventory KPIs is inventory turnover. This is the ratio of how many times your business has sold then replaced inventory over a set time period, usually a year. Said another way, it measures how efficiently inventory is managed.

Monitoring inventory turnover – and properly managing inventory – can help you make decisions and answer questions that improve the health of the business, like:

? Should order quantities be increased up or down?

? Are there bulky or slow-moving goods that can be moved to a long-term storage facility?

? Can you retire or certain SKUs to focus on your most profitable products, or offer bundles designed to boost sales?

Low inventory turnover could mean a weak sales ratio or excess inventory, while high turnover could mean strong sales or inadequate inventory levels. Demand forecasting can also help brands and supply chain leaders determine the ideal turnover rate for their specific products.

Costs of Goods Sold / Average Inventory = Inventory Turnover Ratio

KPI Need to Know:

While a high inventory turnover ratio is not always an indicator of success (see: AOV vs fulfillment costs, for instance!) it is usually a sign that your sales are healthy.

2.Days Sales in Inventory:

Days sales in inventory (DSI) measures the average number of days it takes you to sell through your inventory. It’s also sometimes referred to as inventory days on hand, days inventory outstanding, or days sales of merchandise.

The metric can also measure the demand for inventory, the speed of the cash conversion cycle, how effectively a business manages its stock, and a brand’s cash flow

Days Sales in Inventory = Number of Days in the Period / Inventory Turnover

KPI Need to Know:

Monitor inventory carefully and set alerts in your fulfillment platform to ensure you can maintain enough inventory to avoid stock outs while keeping DSI low.

3. Work-in-Process Inventory:

Work-in-process inventory is a metric that measures how much inventory in sales is currently in the manufacturing process or unfinished. It’s different from raw material in that this metric does not include any finished product, only products that have begun production.

To calculate the work-in-process KPI, you first need to determine your beginning work inventory for the next period. You also need to assess manufacturing costs and the cost of manufactured goods (COGM). Once you’ve got those metrics, you can calculate the work-in-process inventory with the formula below.

KPI Need to Know:

As with most inventory management KPIs, ensuring an efficient inventory management process is critical to optimizing the work-in-process inventory metric. One of the best ways to do that is to use fulfillment software that integrates all your vendors and sales channels, adding a layer of visibility across all inventory, at every stage

4. Inventory-to-Sales Ratio:

The inventory-to-sales ratio compares the average inventory value to the average sales value. This KPI helps you to strike the correct balance between maintaining enough inventory to prevent stock outs without holding on to too much excess product and, therefore, paying more money to store it.

Determining how quickly your brand liquidates stock and how much capital you have invested in inventory is especially critical in the midst of dynamic macroeconomic factors, increasing order volumes, and supply chain disruptions.

The first part of calculating the inventory-to-sales ratio is calculating the average stock value. Brands must add their beginning and ending inventory values together, then divide that sum by 2

Average Stock Value = (Beginning Inventory + Ending Inventory) / 2

The second step is to calculate net sales. Brands should compute their gross sales valuation (total sales before discounts and returns) and subtract the value of all returned sales from it.

Net Sales = Gross Sales – Sales Returns

KPI Need to Know:

A solid inventory management strategy and the technology to back it are critical to maintaining the correct inventory-to-sales ratio. Find a platform – or work with a partner – that allows you real-time access to the data that influences your inventory-to-sales ratio.

#.More KPIs to Consider:

While we’ve aimed to cover the most critical supply chain KPIs in this guide, there’s a whole host of metrics you can track, depending on your specific business and its challenges and goals. Find more suggestions here, and click through for additional detail.

#.Inventory Management KPIs:

• Days/Weeks on Hand
• Stock to Sales Ratio
• Sell-Through Rate
• Backorder Rate
• Inventory Turnover Rate
• Accuracy of Forecast Demand
• Cost of Receiving Per Line
• Receiving Cycle Time
• Put Away Time
• Time to Receive
• On-Time Orders
• Inventory Shrinkage
• Inventory Carrying Cost
• Customer Satisfaction Score
• Service Leve