Inventory KPIs, or key performance indicators, are quantitative goals you hope to reach in your supply chain within a certain time frame. Keeping these metrics can help you monitor your stock, identify trends, and make better purchasing decisions.
Tracking metrics is one thing but it's that you are tracking the right ones. The metrics you choose will vary greatly depending on the business you operate, and the specific industry you’re in. For example, eCommerce drop shippers can expect very different performance indicators than brick and mortar businesses. When choosing metrics to measure your inventory, look for ones that tell you a complete story of your business and help you forecast trends accurately. To help you out, here are four of the most important and informative inventory management metrics that you need for your business.
Gross Margin Return on Investment
The gross margin return on investment (GMROI) is a profitability ratio that can help you determine how well you are balancing sales and costs. In general, it represents your ability to turn inventory into cash.
Inventory shrinkage is the difference between the inventory on the books (e.g. accounting records) and the actual inventory available. This can occur when products are lost due to theft or damage, or when products are misplaced.
Lost Sales Ratio
The ratio between lost sales and the total value of your stock is used to measure your ability to stock the inventory that your clients want and sell it to them. To calculate for your lost sales ratio, all you have to do is to take the number of days a product was out of stock and divide by 365.
This calculation works best for individual products, as it allows you to see what’s in the highest demand. There’s no single number that constitutes a benchmark since your business and products vary so greatly. However, if your lost sales ratio is high, it suggests that your business struggles to forecast customer expectations and does not have the appropriate amount of inventory to meet demand. A lower ratio indicates you manage your supply chain well.
Customer Satisfaction Rates
To calculate your customer satisfaction rate, you first need a scale to measure the experience of your customers with your store and products. This is typically a five-point scale like poor, dissatisfied, good, very good, and excellent. If you pay attention to your customer satisfaction rates, you can understand how well your product is received overall. This can help you identify ways to improve your product as well as future steps for your business.
We hope this article proves to be useful when it comes to helping you gain a better understanding of the KPIs you need to be tracking for your business. While this may seem like a lot of work, having an accurate perception of how well your business is doing will help you make more informed decisions in the long run. Be sure to keep everything you’ve learned here in mind so that you can accomplish your business’s long-term and short-term goals.
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