inventory management metrics

Posted October 5, 2016 / By admin / 0 Comment

3 Inventory Management Metrics You Should Be Tracking

Knowing your numbers is crucial to a business’s success. How can you tell if your business is growing when you don’t have anything to compare it to? No matter what size your business is, there are a few numbers you should always have your eye on. Calculate the inventory management metrics below to not only get a pulse on how your business is performing now, but to set goals for continuous improvement each quarter.

Why focus on inventory?

Inventory is often one of the most expensive assets of any business. While having some inventory on hand is beneficial, it’s expensive to maintain (warehousing costs) and these assets are not liquid. If your company needed funds now, it would take a while to convert these tangible assets into cash. These calculations help you minimize risk as well as maximize profitability.

Inventory Accuracy

Gone are the days where your whole team would spend an entire day, or sometimes weeks, physically counting each widget in your warehouse. Inventory management systems automate this process with the help of barcodes. Unlike keeping track of your inventory in Excel, barcode scanners update stock levels in real-time. And while this tracking technology helps prevent a lot of headaches, it is best practice to do random sample counts throughout the year to see if anything is missing. Keep in mind that these manual counts are to make up for human error such as failure to report damaged goods or employee theft.

Sample # Widets/Tracked # Widgets

Goal: 95% accuracy.

Inventory Turnover

How fast is your inventory coming in through one door and going out another? Inventory turnover is a ratio that measures how fast widgets are sold and replaced. This metric is specifically to calculate the efficiency of a company’s inventory management system. It may be easy to spot an inventory shortage or surplus during your peak season, but what about the rest of the year? Once you’re done calculating it, compare it to your industry’s averages. How do you compare to the competition?

1) Costs of Goods Sold/Average Inventory
2) Sales/Inventory

Goal: The higher the rate, the more efficient your supply chain is.

Note: A higher rate is only valuable if a profit is being made. Selling goods at a steep discount to get them out the door faster makes this inventory management metric invalid.

Item Fill Rate

Selling widgets is what your business is all about, and therefore item fill rate is a crucial metric to be tracking. It doesn’t matter how many sales you are making if the right products don’t get to the right customers at the right time. Unhappy customers can be expensive. They can hop onto their computer and write negative reviews about your product or service for the whole Internet to see. The goal here is to improve customer satisfaction as well as your team’s efficiency. Don’t just pay attention to how many orders get completely filled; also keep an eye on orders that only get partially filled.

Orders Filled/Total Orders

Goal: 100% accuracy.

Stop spinning your wheels trying to do all of this math by hand. Automating your inventory processes can save your business a lot of time and money. Bar Code Direct is the best partner for inventory management. Contact us today to see how we can help you hit your sales goals.