Inventory management is a challenging endeavor. Acquiring, collecting, storing, choosing, and shipping products entail a lot of actions, procedures, and staff, with the ultimate goal of keeping customers satisfied with full, on-time purchases. As a result, I have prepared for you a table of the top 10 Inventory KPIs.
Also, inventory KPIs can offer profound insights into a wide range of other operational concerns.
In other words, your inventory contains a wealth of important, actionable information, from sales numbers and future demand to storage performance and opportunity costs. Furthermore, here is the table of the top 10 Inventory KPIs.
Table of Contents
Top 10 Inventory KPIs
Here are the top 10 Inventory KPIs.
#1: Average Inventory
Description: Amount of inventory a company has on hand during a period.
Formula: Average inventory = (Beginning inventory + Ending inventory) / 2
#2: Days on Hand
Description: Days on hand (DOH) is the average days before inventory is sold.
Formula: Days of inventory on hand = (Average inventory for period / Cost of sales for a period) x 365
#3: Stock-to-Sales Ratio
Description: Stock-to-sales ratio is the measure of the inventory amount in storage versus the number of sales. This broad calculation can be used to adjust the stock to maintain high margins.
Formula: Stock to sales ratio = Inventory value / Sales value
#4: Cost of Carry
Description: Percentage of total inventory value a company pays to maintain inventory in storage.
Formula: (Inventory Service Costs + Inventory Risk Costs + Capital Cost + Storage Cost) / Total Inventory Value
#5: Backorder Rate
Description: Tracks the number of delayed orders due to stockouts.
Formula: Backorder rate = (Number of Undeliverable Orders / Total Number of Orders)
#6: Sell-through Rate
Description: Comparison of the inventory amount sold and the amount of inventory received from a manufacturer.
Formula: Number of units sold / number of units received
#7: Scrap Rate
Description: Measures the quality of the inventory and is used to decrease the non-quality costs.
Formula: Scrap expenses over the period / Average inventory over the period
#8: Time to receive
Description: Measures the efficiency of the stock-receiving process.
Formula: Time for stock validation + Time to add stock to records + Time to prep stock for storage
#9: Inventory Shrinkage
Description: Measures the shrinkage due to damage, miscounts, and fraud.
Formula: Ending inventory value – Physically counted inventory value
#10: Dead Stock
Description: Dead stock is inventory no one wants to buy. Measures efficiency of the supply chain.
Formula: Amount of unsellable stock in period / Amount of available stock in the period
The Final Verdict – The Top 10 Inventory KPIs Play Integral Role in Your Company’s Success
Although the above list of 10 KPIs may sound intimidating, keep in mind that you don’t have to adopt them all at once. Therefore, pick the ones that are most appropriate for your company.
Additionally, you may identify trends that will assist you in figuring out how to enhance your inventory management procedures and ultimately turn your company into a highly efficient organization by selecting the KPIs that are right for your company’s needs and monitoring them over time.
Finally, you can take my course and learn all the necessary KPIs and get the finance expertise to become a finance professional.
