Once you have full visibility over your inventory management, you can start to see how to grow sales, margins and efficiency throughout your business. Here’s everything you need to know about using inventory reporting to analyse — and improve — your business processes.
A good inventory management system allows you to take control of your stock as you purchase, produce and sell goods. But a great one enables you to make measurable improvements to how you run your business. Read on for a detailed rundown on the essential inventory reporting metrics you need to track and the types of inventory reports you should be generating.
What is an inventory report?
An inventory report is a catchall term covering any reports relating to purchase management, production management, what’s on order, in production, in the warehouse and allocated for sale, and sales reporting.
Keeping up-to-date inventory reports helps business owners track the movement and profitability of their stock. They can be written in different forms and lengths, but good inventory reports will always be clear and exhaustive.
The importance of inventory reports
Creating good inventory reports is essential to sustaining a healthy product business. It enables you to identify problems quickly, control costs and get more satisfied customers.
Identify problems quickly
Stock reports (also called inventory records) detail everything that comes into and out of the warehouse. When kept up to date, they can help you identify any problems affecting performance: such as product loss through theft, obsolescence or dead stock.
Optimise stock levels
Good inventory reports enable you to identify trends and opportunities. This informs optimal reorder quantities, allowing you to minimise the risk of over and understocking.
Control business costs
Up-to-date inventory records help you keep up with your costs. They can show you which suppliers offer the best deals, freight and transport costs, cost of returns and more so you can adjust your expenses accordingly.
Inform business goals
Inventory records identify the metrics and key performance indicators (KPIs) that can help you when it comes time to set attainable goals so that you can give direction to your business growth.
Maintain customer service standards
Using inventory reports, your customer service team or sales rep will know where to quickly get the right stock and pricing information for customers. If customers face delays and long wait times, they might switch to a competitor who can provide them with the right information and products quicker.
Top-level performance metrics
There are hundreds of potential inventory reporting metrics, ranging from the simple to the sophisticated.
At the basic level, inventory metrics track stock that’s coming in and leaving your warehouse. Consistently tracking your inventory allows you to spot trends and gain insights to make better data-driven decisions for your company. Here are six metrics every product business should be using.
1. Sales volume
Sales volume is the number of units sold within a given reporting period. It may be monitored at the level of product, product line, customer, subsidiary or sales region.
2. Sales revenue
Sales revenue is the amount of money that is brought into the business from the sales of products and/or services over a period of time. Revenue is calculated as:
Did you know?
Unleashed customers increased sales volume by 13% on average in 2018. Not only that, but their sales value increased by 25%!
Fundamentally, profit is how much money your business is making. It’s calculated as:
Gross Margin is often used interchangeably with Gross Profit, but the terms are different. When referring to a monetary amount, use Gross Profit; when referring to a percentage or ratio, use Gross Margin instead.
- Learn more: What is a good profit margin?
4. Gross Margin
Margin, or gross margin, tells business owners and other stakeholders the percentage of sales revenue remaining after subtracting the cost of goods sold.
Calculating margins help us to understand the relative profitability of a firm. Gross margins are calculated as:
Did you know?Great inventory management software can help you better make, manage or move your products — just look at Unleashed customers: they increased their margins by 5% in 2018.
5. Cost of Goods Sold
The cost of goods sold (COGS) tells you how much it costs to produce your products or services.
Knowing your COGS helps you make informed decisions, such as whether your raw material costs are weighing heavily on your overall expenses.
To calculate your cost of goods sold , you need to work out what you spent on the products you sold to your customers. It sounds simple, but with costs fluctuating over time, getting an accurate figure can be tricky. And without an accurate figure, you won’t be sure of the margin you’re making — or what the value of your remaining stock is.
There are three main ways of calculating COGS: FIFO, LIFO and average landed cost.
6. Number of customers
The number of customers gives an indication of performance compared to previous periods. Businesses can group customers based on the value of their purchases, and develop plans to serve the requirements of each group.
FIFO & LIFO
Average landed cost
Did you know?Unleashed customers experienced 6% growth overall in their customer base from 2017 to 2018!
Now that you know which basic metrics you need to be tracking, read our comprehensive guide to identifying the types of inventory reports you need to be using to track detailed performance across your purchasing, production, stock and sales.
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