Key Metrics to Track to Improve Your Business - Part 2

While we've already discussed a couple of important metrics, there are more things that you need to keep track of. In addition to the key performance indicators we've already talked about, here are several, more specific metrics you'll want to keep an eye on so that you can fine-tune your day to day operations.


Inventory Turnover


Inventory turnover rate, or stock turn, addresses this question. This metric calculates the number of times stock is used in a time frame. The inventory turnover rate is calculated by dividing the cost of the goods sold by gross profit.


When a company’s inventory turnover rate is high, it indicates that it has efficient operations and can get products to customers quickly. However, a high inventory turnover rate may also indicate that the company does not have enough inventory to support the volume it needs for its sales.


Inventory Carrying Cost


Managing your supply chain comes with hundreds of points of data. Risk costs, capital costs, and service costs are all important factors. Your inventory carrying cost is a per cent of all overhead costs and your inventory value is divided by the total value of your inventory.


Your inventory costs should be around 20%. This cost percentage is appropriate because it indicates that you’re spending enough money to effectively manage your inventory supply but are not overspending on it.


Order Cycle Time


Your order cycle time, or OCT, is a metric that measures the average time required to fulfill orders. The efficiency ratio helps you determine the responsiveness of your business by measuring the time it takes to complete operations. In a marketplace where one-day shipping is common, it's essential to provide speedy service.


Companies that can fulfil customer orders faster are better at responding to customer orders. This general concept, however, doesn’t take into account that lead times vary widely among different types of businesses. For example, companies that manufacture and produce all products in-house will have longer lead times, while drop shippers and larger retailers may experience shorter lead times.


Cost Per Unit


Cost per unit refers to how much your business spends to produce each product. Looking at cost per unit can help you determine what you need to be profitable. Running a successful business requires cutting costs as much as possible, especially in your internal operations. A lower cost per unit ratio is better because it means you spend less to produce each unit. However, there’s no straightforward way to evaluate this metric because it doesn’t take into account the final price of your business' products With that being said, the cost per unit can be used to determine the minimum number of products that must be sold for your business to be profitable (the breakeven point).


Conclusion


This article should prove useful when it comes to helping you better track the metrics that are important for your business. Keeping track of these metrics is a useful way to evaluate how well your business is doing in the short term and the long term. Be sure to keep everything we’ve discussed here in mind so that you can make the most informed decisions for your business.


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