When it comes to making the best decisions that can directly impact your business’ bottom line, it is imperative to derive actionable insights from your business’ inventory stock data. It is crucial for any business to understand key stock inventory metrics that informs this data, thus enabling your business to make better informed decisions. Inventory touches every part of your business operations, and so with these key metrics, they act as indicators so you’re able to benchmark your business’ operations over a period of time and against competitors. Here are 5 top inventory stock metrics you need to know to gain a competitive advantage in today’s competitive market.
Inventory Stock Turnover
Inventory Stock Turnover = Total Sales / Average Value of Inventory Stock on Hand
This metric measures the number of times inventory is sold within a period of time, typically a year. This tracks how quickly a business is replacing inventory stock. The higher the turnover rate, the less time your inventory stock spends in storage and the associated costs of storing. Conversely, a high rate may mean inadequate inventory stock and a potential loss in sales as the inventory stock levels are too low. You may be experiencing inventory stock shortages because you underestimated demand. However, a low turnover may suggest that your business is overstocking, dealing with obsolete goods, having issues with the product or your marketing efforts and your inventory stock is not selling as expected.
Gross Margin Percent = (Total Sales Revenue – Cost of Goods Sold) / Total Sales Revenue
Gross margin is the percent of total sales revenue the company retains after paying the direct costs associated with producing products. The gross margin metric works hand in hand with inventory turnover. If your business is experiencing weak gross margins, you may want to focus on increasing your inventory turnover. In addition, your gross margins may reflect your relationship with your suppliers and their pricing. The more power and control your suppliers have, generally the higher the prices you will be experiencing. If you can negotiate the prices and costs for your purchases, a lower cost of inventory means a higher gross margin.
Item Fill Rate
Item Fill Rate Percentage = Received Quantity / Ordered Quantity
Item fill rates show how your business is servicing customers. It shows what orders your customers are getting on time, the lower the ratio, the weaker your inventory performance. Item fill rates are important because it affects your customer satisfaction; ideally businesses should aim for 100%. If you’re below 100%, your customers may order from your competitors for better reliability. To improve item fill rates, it is recommended to invest in an online inventory management software solution that shows you real-time inventory levels so that you can keep on top of inventory stock.
Cycle Time = Actual Ship Date – Customer Order Date
A cycle time is the average of the total time it takes from when an order is first requested until it is completed. Cycle time is a critical metric for setting realistic expectations with customers. Longer cycle times indicate inefficient processes, compared to shorter time cycles that suggest efficient processes. There are ways to decrease your business’ cycle time. This can be done by rearranging your warehouse for optimum organisation or implementing an online inventory management software that alerts you to low stock and automates inventory stock processes.
Inventory Stock Accuracy
Inventory Accuracy = Regular Stock Takes
This metric determines the amount of stock physically present in your business’ storage location. The industry standard using this metric is measured in the way that even if a product is sold, it is not subtracted from inventory on hand until it physically leaves the warehouse, so this number will usually be higher than your available inventory. Regular inventory stock counts are a must for keeping on top of inventory stock accuracy.
These top 5 metrics are key to understanding your business’ inventory stock data, that can create a wealth of insight to your business operations. Understanding these metrics will help serve in better decision making for your business and positively impact your bottom line.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.