1. Warehouse Inventory Metrics – The top 10 1. Inventory Turnover.

This KPI is easily one of the most important

inventory metrics for any organization to measure. This KPI examines how often you are able to turn over your
inventory each year by calculating the cost of inventory sold and dividing the balance left over at the end of the
year. While having a high inventory turnover rate is clearly good, it shouldn't come at the cost of losing sales or
disrupting operations. Use this metric to find out what your optimal turnover rate is. Benefit: Know your turnover
rate and reduce aging inventory. Audience: Managers, Executives Calculation: (Total Sales - Cost of Sales) /
(Inventory remaining at end of year) = Times inventory turns over per year Example: ($5.0 M Sales - 35% =
$3.25M) / ($250k) = 13.0 turns/year
2. 9. 2. Inventory Accuracy. This KPI measures just how accurate your bookkeeping is compared to in-stock
inventory. This can be a telling KPI, revealing costly gaps in your books. Keeping track of inventory is the name of
the game and you can't afford to waste time tracking inventory that isn't there or, worse, not knowing what's in
stock when a customer comes calling. Benefit: Gain insight into your bookkeeping practices. Audience: Front-line,
Managers, Executives Calculation: # of Items counted / # of Items books count = variance % Example: 500 items
counted / 550 items books count = 90% accurate (or 10% variance) 3. Rate of Demand. This KPI measures the
rate of demand for each product you carry. This metric is an important measure of your product turnover rate and
is an integral part of any inventory organization's business intelligence strategy. You will want to keep the rate of
demand as close to 1:1 as possible without carrying too much stock or not enough stock. Benefit: Know which
products are in high demand so you always have them in stock. Audience: Managers Calculation: (Monthly unit
sales - End of month units in stock (not including restock)) / (Monthly unit sales) = Rate of Demand Example: (185
units sold - 10 units = 175) / (185 units sold) = 94% Rate of Demand
3. 10. 4. Average Days on Hand. This KPI measures the average amount of days on hand a product or line of
products spends in inventory. While it is pretty much the inverse of the Rate of Demand KPI, this KPI is important
to monitor because it highlights which products move quickly and which ones are collecting dust. In fact, this KPI
can tie into any number of metrics and point to shortcomings (or strengths) of vendors or distributors. However,
putting too much stock on this KPI may backfire especially concerning seasonal or trendy goods. Benefit: Know
which products are slow movers and which products are fast movers Audience: Managers, Executives Calculation:
((Date shipment arrived / Date last item shipped = number of days in stock) + (Date 2nd shipment arrived / Data
last item shipped = number of days in stock)) / Number of shipments = Average days on hand Example: ((Date
Shipment 1 Arrived May 21st/ Date Shipped June 14 = 24 days) / (Date Shipment 2 Arrived June 5 / Date Shipped
June 21 = 17 days)) = 41 / 2 = 20.5 days on hand
4. 11. 5. Carrying Cost of Inventory. This KPI measures how much it costs you to hold and store inventory over a
given period of time. This KPI is intimately connected to figuring out the profit margin on in-stock inventory. Use
this KPI to determine the amount your organization needs to produce and to determine the optimum rate of
turnover. Benefit: Know your costs and maximize your profits. Audience: Managers, Executives Calculation: (Sum
of Monthly Expenses) / (Average Inventory Value * Average Number of Items) = Carrying Cost / Item Example:
($100,000) / ($20 * 1000) = $5 per Item 6.Rate of Return. This KPI measures the rate at which products you ship
are returned to you. This metric begs to be broken down to determine why products you ship are being returned to
you. Is it due to improper shipments? Is it because the items are damaged en-route? Use this KPI to track rate of
return over time, and alert of significant variances, to increase your turnover and profit margin. Benefit: An early
warning of underlying shipping and or quality issues. Audience: Front-line, Managers Calculation: (Total Items
Returned) / (Total Items Shipped) = % Rate of Return Example: (50) / (1,000) = 5% Rate of Return
5. 12. 7. Perfect Order Rate. This KPI measures your organization's ability to put together an accurate order, ship
without damage, deliver on time, and invoice correctly. The metric tells you a lot about the efficiency of your
practices and points to where you need to tighten up your game. Are deliveries coming in late? Are products being
damaged en-route? Use this KPI to improve your entire system and, as a bonus, you should see an improvement
in your customer satisfaction numbers. Benefit: Know where your orders are going awry and improve your
efficiency. Audience: Front-line, Managers Calculation: # of errors per order = Order Rate % Example: 100 errors
per 15000 orders = 99.3% perfect order rate 8. Back Order Rate. This KPI measures the amount of orders that
cannot be filled immediately, causing your customer to wait before you can ship. As you know, when your
customer orders something, they usually want it right then and there. This metric tells you how well you are able to
cope with customer orders and give them what they want, when they want it. Again, this metric is a prime indicator
of customer satisfaction, so make sure this KPI finds its way onto your dashboard. Use this KPI as a starting point
for delving deeper into your back order rate, drilling down to find out which items, customers, or even seasons are
causing you the most headache. Benefit: Know which products are causing back orders. Audience: Front-line,
Managers Calculation: # of back orders / total # of orders = Back Order Rate % Example: 5 back orders / 100
orders = 5% Back Order Rate
6. 13. 9. Percentage of out of stock items. This KPI measures the percentage of items that you are committed to
carrying, but that are currently out of stock. This metric tells you what items need to be restocked and can be a
strong indicator of what items are popular. After all, an item out of stock is likely a product that is doing well. So this
KPI may not be all bad and you will want to use it to figure out why certain items are out of stock. To use a basic
example, being out of winter coats in July is one thing, but being out of winter coats in January demands your
attention. Benefit: Know which products are moving and find out why they are moving. Audience: Front-line,
Managers Calculation: # of items out of stock / # of items in stock = % of out of stock items Example: 100 items out
of stock / 1000 items in stock = 10% items out of stock 10. Inventory to Sales Ratio. This KPI measures your ratio
of in-stock inventory versus the amount sales order you are filling. This metric is a good barometer for the well-
being of your organization and is an indicator of the state of the economy. The challenge with this KPI is identifying
what the best ratio is for your organization. Ideally, this ratio will be stable and in lock-step with prevailing economic
conditions. A tricky metric, to be sure, but still important to measure! Benefit: Keep your finger on the economic
pulse and maintain a stable I-S ratio. Audience: Executives Calculation: (Inventory value $) / (Sales value $) = I-S
ratio Example: ($1,000,000)/ ($750,000) = 1.3