1/11/2020 Inventory Metrics & KPIs – Best Practices Every Manager Should Know

PRODUCT SOLUTIONS SERVICES LEARN COMPANY FREE TRIAL

The datapine Blog

News, Insights and Advice for Getting your Data in Shape

A Beginner’s Guide To Inventory Metrics

Search Blog
And Best Practices
By Mona Lebied in KPIs, Jun 6th 2018 enter search term

FOLLOW DATAPINE
    

Recent Posts
Utilize The Effectiveness Of
Professional Executive Dashboards
& Reports
Jan 8th 2020
When we look at some facts and figures, we find out that for retail, inventory is accurate The unrivaled power and potential of
only 63% of the time on average, or that 88% of supply chain managers estimate that executive dashboards, metrics and
they could reduce inventory levels by more than 5% with improved processes and reporting explained.
technology. These numbers draft out a troubling scenario: most of the inventory
read more
management professionals are aware that the situation and their work could be
improved, and that software could help – but they are not yet sure how to make it
happen.
Accelerate Your Business
Performance With Modern IT
It shows us once more how important setting up and tracking the inventory KPIs for Reports
your business is in order to evaluate and improve your performance. Collecting big Dec 18th 2019
amounts of data is not the only thing to do; knowing how to process, analyze and
How to use IT reporting and dashboards
visualize the insights you gain from it is key. In order to make the best decisions that will
to boost your business performance and
positively impact your business‘ bottom line, you need to have the full scope of your
get ahead of the competition.
data. In the matter, a data analysis and dashboard designer software is a precious ally.
read more
In this article, we will take a closer look at the inventory management: what are the
performance indicator that can help, how to choose them, and outline some inventory
metrics examples as well as best practices. The 10 Essential SaaS Trends You
Should Watch Out For In 2020
Dec 11th 2019
Exclusive Bonus Content: Inventory management: a summary guide Essential SaaS trends and insights for
Download our short handbook to inventory KPIs and best practices! 2020 and beyond.
read more

https://www.datapine.com/blog/inventory-metrics-and-kpi-best-practices/ 1/8
1/11/2020 Inventory Metrics & KPIs – Best Practices Every Manager Should Know

What Are Inventory Metrics? Why DoSOLUTIONS

PRODUCT We Need Them?
SERVICES LEARN COMPANY FREE TRIAL
Like any other, the inventory metrics help you measure and assess your performance –
and thus, give you some keys to improve it. They focus on a specific area and towards a Tags / Categories
specific goal. Inventory metrics can be common to different industries, and it is no
surprise that you can identify one as a logistic KPI, but also see it listed as a retail KPI for Business Intelligence (56)
instance. Buzzwords (5)
Dashboarding (37)
By giving you clear milestones to hit every week, month, quarter or year, they help Data Analysis (55)
greatly in eliminating the guesswork. With them, you get the data you need to make Data Visualization (31)
strategic and better-informed decisions that will positively impact your business. Indeed, Featured Marketing (7)
they help you drive the most effective behaviors, strategies and decisions. Among other Google Analytics (2)
things, they help in improving on-time deliveries, in reducing operating costs, in KPIs (27)
increasing customer satisfaction, or in optimizing transport. Market Intelligence (1)
News (3)
Real World Stats (10)
How To Choose The Right Inventory KPIs?
Reporting (36)
When it comes to picking up metrics, everyone can be tempted to use the easiest, most Security (3)
‘reassuring’ ones that capture efficiency – but it is far more difficult to choose the ones Technology (10)
that reflect improvement in effectiveness. And these ones are more valuable. Same
remark goes to the ‘vanity metrics’, that make a process of department look good but
that do not deliver insights on how to enhance the effectiveness of inventory
management.

Likewise, you should resist the urge to take metrics that have scope too broad: the
insights they will deliver will not lead to quick and valuable action or reaction. The key in
choosing the right indicators is to always keep in mind your business strategic
objectives and to select them accordingly. What is complex and should not be
overlooked in inventory management, is that operational, supply-chain related metrics
and customer satisfaction metrics are involved. Indeed, your customers are the ones
who are going to receive your inventory: if they get the wrong item, or late, or that it is
out of stock for too long, the inventory will look like it is totally unmanaged and will
leave them frustrated (and they probably won’t come back so often).

Once you have chosen the inventory metrics that will best fit your business and your
needs, let’s go over some examples to illustrate them, as well as some best practices to
observe.

Inventory Metrics Examples

Since both cost factor and customer experience are essential in inventory management
and for any business, let’s have a look at a handful of promising inventory KPIs that
cater to these two areas.

Inventory accuracy

https://www.datapine.com/blog/inventory-metrics-and-kpi-best-practices/ 2/8
1/11/2020 Inventory Metrics & KPIs – Best Practices Every Manager Should Know

PRODUCT SOLUTIONS SERVICES LEARN COMPANY FREE TRIAL

Simple and straightforward: you need to know what you have in stock and what is
passing through your warehouse. By performing regular cycle counts, equipping
yourself with electronic tags will make the work easier and provide you with data
needed to compare your physical inventory to the electronic record of it.

This is an inventory KPI that can make or break your business: if you do not have in
stock what you sell online on your ecommerce platform for instance can considerably
harm your business. This metric will also help spot issues related to shipping, receiving
or accounting. Try to keep this ration over 92% as much as possible.

Inventory turnover

The inventory turnover looks at how many times, over a certain period, your entire
inventory is sold. You can calculate it by dividing the costs of goods sold by the average
inventory. It is a good indicator when it comes to efficient production planning, process,
marketing and sales management. As a general rule of thumb: the higher, the better.

https://www.datapine.com/blog/inventory-metrics-and-kpi-best-practices/ 3/8
1/11/2020 Inventory Metrics & KPIs – Best Practices Every Manager Should Know
If you have a low turnover, that might point out difficulties in turning your stock into
PRODUCT SOLUTIONS SERVICES LEARN COMPANY FREE TRIAL
actual revenue – you then need to investigate where the bottleneck(s) is(are), at any
moment in your supply chain process.

Customer retention & loyalty

Some studies state that even just 5% increase in customer retention will bring between
25 to 100% in profits across a wide range of industries. That some percentage you
certainly do not want to miss, and yes customer loyalty is directly linked to your
warehouse management and efficiency. Efficient picking, packing, shipping of accurate
orders on time will keep customers coming back.

Besides, a satisfied customer often refers you to friends and relative, an act much more
powerful than any witty advertisement you can make. This is something you can
measure with a customer service KPI like the Net Promoter Score or NPS, that evaluates
the power of your referral.

Warehousing costs

https://www.datapine.com/blog/inventory-metrics-and-kpi-best-practices/ 4/8
1/11/2020 Inventory Metrics & KPIs – Best Practices Every Manager Should Know

PRODUCT SOLUTIONS SERVICES LEARN COMPANY FREE TRIAL

This warehouse KPI evaluates the expenses involved in the management of your
warehouse. Ordering, storing, loading the goods of your inventory – all this needs
money to be executed properly. There are also human costs like labor, transport and
delivery that should not be forgotten.

Measuring the warehousing costs is no piece of cake – this is why you should proceed
to do it meticulously and not omit or forget any. Once it is done, it smoothens the overall
management and adds value, which is often is appreciated by senior management and
investors.

Inventory to sales ratio

This inventory KPI is also oriented towards finances. It is one metric helpful to evaluate
the overstock, that will also tell you whether your company is able to face unexpected
situations. It is measured by dividing the available inventory for sale by the quantity that
is actually sold. Combined with the inventory turnover or the carrying costs of inventory,

https://www.datapine.com/blog/inventory-metrics-and-kpi-best-practices/ 5/8
1/11/2020 Inventory Metrics & KPIs – Best Practices Every Manager Should Know
it will give you a better picture of the financial stability of your business, but also help
PRODUCT SOLUTIONS SERVICES LEARN COMPANY FREE TRIAL
defining the direction you want to take (like selling your entire inventory as quickly as
possible or not).

Exclusive Bonus Content: Inventory management: a summary guide

Download our short handbook to inventory KPIs and best practices!

Inventory Management Best Practices

As we have seen all along this article, inventory management is not something that is
limited solely to warehouses; manufacturing companies need data on trends (seasonal
information, price point, buying behaviors and patterns, etc) to make sure they always
have enough for retailers. To master the art inventory management, here are a few tips.

ABC Analysis for categorization

To start with, a good technique for inventor management is to realize a hierarchy of your
most valuable to least valuable items, by dollar value. As in general, not all your stock
has an equal value, this will help in focusing on the items that bring in the most money.
Classify them as follows:

. A-items: best-selling products with the highest priority. Need a permanent quality
review and regular reordering
. B-items: valuable but with a medium priority. Monthly reordering is usually sufficient.
. C-items: low-priority stock, generally carried in high volumes and needing a minimal
reordering.

Thanks to such organization, you can organize your warehouse according to how your
inventory is sold and how much value which item brings to your business. It is good to
optimize space, as well as streamline order fulfillment.

JIT – Just In Time

The Just in Time is another inventory management technique that helps with the cash
flow management for retailers. JIT means that you only buy what you need from a
vendor when you get an order from a customer. This technique can be a bit trickier for
manufacturers because as we stated earlier, you need data on trends to have enough
stocks for retailers.

Your business will best benefit from JIT if you are an ecommerce company, or if you
build customized products such as jewelry, furniture, luxury cars, etc; but also as a
service-based business (events, food, garage, etc).

Be data-driven
With the help of what we wrote above, you can choose the KPIs that fit best your
business’ needs, and track them over time. You may start to recognize patterns and
trends, but also bottlenecks and inconsistencies. All this will help you figure out how to
improve your processes and enhance efficiency.

Benefiting from the numerous advantages data analysis tools provide will make you
stand out of the crowd, and ultimately increase your efficiency even more. Data
consolidation and analysis is simple, thanks to intuitive drag and drop interface. They
will also help you visualize easily your insights and communicate them in a meaningful
way through inventory dashboards.

https://www.datapine.com/blog/inventory-metrics-and-kpi-best-practices/ 6/8
1/11/2020 Inventory Metrics & KPIs – Best Practices Every Manager Should Know

Implement quality control

PRODUCT SOLUTIONS SERVICES LEARN COMPANY FREE TRIAL
Last but not least, the quality control is of utmost importance for any business, and
should be implement as early as possible. To ensure customer satisfaction and a steady
business growth, it is imperative to have quality control processes.

From a procedures’ checklist to follow at the reception of an item, to damage

monitoring and product compliance, make sure all your employees are aware of the
entire quality control process that should be observed. When an item doesn’t match the
company’s quality standards, they will return them to the supplier, and reduce the stock
levels.

Inventory Dashboard Example

Now that we have gone over some metrics and best practices, let’s have a look at how
it could look like on an inventory dashboard:

**click to enlarge**

We have here a good illustration of inventory management performed with the help of
business intelligence and data visualization: the performance metrics that matter to the
supply chain manager are tracked and displayed on a professional dashboard. To find
more examples and templates, take a look at our other logistics dashboards.

Exclusive Bonus Content: Inventory management: a summary guide

Download our short handbook to inventory KPIs and best practices!

The inventory manager has a lot of responsibilities, and must act as an air traffic
controller. He should effectively collaborate with his peers to coordinate and guide
processes together, so that they get optimized inventory results. To be successful in this
position, it is important to have an extended knowledge of the supply chain principles –
but it is today equally important to have strong analytic skills. The use of online BI tools
to set up and track the right inventory metrics they need is a must-do in order to spot

https://www.datapine.com/blog/inventory-metrics-and-kpi-best-practices/ 7/8
1/11/2020 Inventory Metrics & KPIs – Best Practices Every Manager Should Know
out and catch any opportunity as they arise, and conversely identify problems to fix as
PRODUCT SOLUTIONS SERVICES LEARN COMPANY FREE TRIAL
soon as possible.

Thanks to this little guide to inventory management best practices and metrics, you
have some of the keys in hand to have a better control over your business, and reap
maximum benefit. To see how you can benefit from a BI software, simply try out our 14-
day free trial!

(24 votes, average: 4.79 out of 5)

FOLLOW DATAPINE      FRIEDELSTRASSE 27

12047 BERLIN, GERMANY

+49 30 6920 9427

Managing Partners: Martin Blumenau, Jakob Rehermann | Trade Register:
Berlin-Charlottenburg HRB 144962 B | Tax Identification Number: DE 28 552 2148 CONTACT@DATAPINE.COM

https://www.datapine.com/blog/inventory-metrics-and-kpi-best-practices/ 8/8