List of 10 Best Inventory KPIs

For customers and business partners, KPIs represent the whole business. If you want an in-depth view of a company, all you needed to do is to check its inventory management KPIs. Inventory measurements and KPIs in inventory management may show you right immediately how a firm describes itself, indicating the patterns that are most significant to the organization.

Ecommerce Metrics KPIs for growth

For managers and owners of the business, inventory control KPIs are significant since they aid in the analysis and tracking of inventory management operations like the way inventory is purchased, handled, and turned. Inventory management KPIs are critical for tracking progress toward supply chain goals and identifying improvement opportunities.

However, with so many inventory KPIs to need to be included in your inventory analytical techniques, which ones are among the most crucial to guarantee you’re on the correct path to maximum effectiveness? Here is a selection of the most popular inventory KPIs.

What Do Inventory KPIs Mean?

In inventory management, key performance indicators or KPIs are indicators that assist you in managing and deciding things about your inventory. KPIs are important in managing inventory since they provide data on sales, expenses, relationships, turnover, demands, process success, and much more.

What Do Inventory KPIs Mean

Inventory management solutions make it simple to monitor KPIs. KPIs in inventory control systems may highlight progress, where procedures want improvement, and where they are successful.

Companies evaluate inventory management utilizing various indicators for various company processes. Classifying KPIs by potential approach allows executives to concentrate on areas that require improvement. Managers may adopt process changes and keep track of progress by identifying issue areas. These are some examples of metrics:

• Sales KPIs: You may utilize sales data to assist your sales staff win business and interacting in the market. Establish these KPIs to align with corporate objectives and utilize them to maximize the effectiveness of the sales team.
• Receiving KPIs: Receiving KPIs, also referred to as warehousing KPIs, may intersect with operating KPIs, particularly when it comes to storing. Receiving KPIs are related to the process of taking in, receiving, and handling inventory promptly. 
• Operational KPIs: Operational KPIs demonstrate how well your company is performing. Consumers are better happy when internal company procedures and metrics are better.
• Employee KPIs: Employee KPIs, also known as labor KPIs, are used to assess the productivity of employees. The higher the results for staff KPIs, the higher your company performs generally. Increased personnel productivity and efficiency translate into cost savings for consumers.

Ways To Select The Most Effective Inventory KPIs For Your Business?

Since every business is unique, so does its inventory KPIs. The inventory KPIs that work best with other businesses does not mean that they will work best with your business. Consider the SMART rule to help you select the right inventory KPIs for your business.

How to select inventory KPIs

• KPIs must be SMART, which stands for Specific, Measurable, Achievable, Relevant, and Timely, to prevent unnecessary broad goals that are challenging to measure and assess. 
• Make sure that all KPIs contribute to your company’s goals, whether they include customer support goals, development strategies, or financial goals.
• KPIs will impact how people perform their tasks, so keep in mind the indicators you chose to support the correct collaborative behavior and prevent ones that foster departmental competition.
• Remember that whenever your KPIs are established, they must be measured and shared frequently throughout your organization. Employees must realize their significance and how they have personally influenced performance. To maintain everyone focused toward the same objective, encourage when you’re doing well and comment when you may need to enhance.

There are also other factors that you should consider when generating KPIs, it is critical to tightly focus metrics on the business segment. New measures might be daunting for employees at times. To begin, consider choosing just a few KPIs per sector. Collaborate with heads of departments to determine:

• How to work responsibilities will alter.
• Whether the measure will enhance productivity as well as efficiency.
• How can employees behave on the information gained from indicators?
• How KPIs may influence employee competitiveness or cooperation.
• If the KPIs are in line with the organization’s values, goals, and missions.
• Whether the metric represents what you’re looking for.
• Whether the measurements relate to regions that require significant development.
• Whether or not the selected KPIs are dynamic. Constantly seek methods to develop.

What Are The Top 10 Best Inventory KPIs In 2022?

Within each segment, we will describe the KPIs specifically, explain how it is calculated, and explain what every indicator informs you about your inventory, operations, or sales.

Sales KPIs: Inventory Turnover Rate KPI

This inventory metric determines how frequently a manufacturer’s inventory is sold, replenished, or turned over within a certain time period. Inventory turnover assesses the overall effectiveness of your firm, with a larger turnover indicating more effectiveness. While certain commodities may have slower turns than many others, they may well be worth the additional time spent on the shelves if they are profitable for your company. To determine the inventory turnover rate, use the following formula:

inventory turnover rate kpi

Sales KPIs: Weeks-On-Hand KPI

Weeks on hand reflects the average number of days of inventory sold every week: a high weeks-on-hand ratio indicates poor inventory flow, whereas a lower weeks-on-hand ratio indicates effective stock movement.

weeks on hand kpi

Sales KPIs: Stock-to-Sales Ratio KPI

The stock-to-sales ratio compares the amount of inventory in the warehouse to the number of units sold. This wide computation could be utilized to alter the inventory such that high profits are maintained.

stock to sales ratio kpi

Receiving KPIs: Time-To-Receive KPI

This KPI indicates how effective your receiving procedure is. Determining the frequency at which your merchandise is received and prepared for sale can assist you in identifying any weaknesses in your warehouse and solving them as soon as possible. For reporting reasons, this needs to be maintained in a warehouse management system.

time to receive kpi

Receiving KPIs: Supplier Quality Index KPI

Supplier quality index (SQI) collects and weighs a retailer’s effectiveness in critical categories like material quality, corrective measures, rapid response, delivery quality, quality management systems, and commercial stance. This is the most general statistic that businesses may attribute to their providers. The majority of businesses choose to provide monthly weights of criteria and then compute SQI for a yearly average. Below is a formula for determining the balanced supplier quality index:

supplier quality index kpi

Operational KPIs: Lost Sales Ratio KPI

A lost sales ratio refers to the number of days a certain item is out of stock in comparison to its predicted pace of sales. It signals whenever a company’s inventory is depleted. To determine the lost sales ratio, just use the following formula:

lost sales ratio kpi

Operational KPIs: Inventory Shrinkage KPI

The percentage of merchandise reported in records but not carrying on business in the inventory. Where this KPI exceeds a certain threshold, it may indicate that there is an issue with inventory damages, theft, miscalculating, or supplier fraud (when one supplier invoices for more items than it supplies), and a full investigation is required.

inventory shrinkage kpi

Operational KPIs: Customer Satisfaction Score KPI

Customer satisfaction levels, which are frequently quantified in net promoter scores (NPS), must be assessed among all distribution and sales platforms. Ideal manufacturers track sales and distribution independently, calculating an NPS for every. This allows you to track your clients’ order-to-delivery timeframes and determine whether they are comparable to what you planned. To determine the satisfaction rating, use the following formula:

customer satisfaction score kpi

Employee KPIs: Labor Cost Per Item KPI

Labor cost per item also referred to as unit labor cost, is the amount of money spent by a firm to create one product unit. This statistic comprises labor pay as well as any other expenditures associated with transferring a product from manufacturing to sale. Using the following formula, determine the labor cost per item:

labor cost per item kpi

Employee KPIs: Labor Cost Per Hour KPI

Labor cost per hour means the hourly cost of a worker to the firm. This KPI serves as a reminder for businesses to achieve better use of their workers’ time. For instance, depending on staff wages, you might assess the cost of an hour-long business meeting and decide if it is worthwhile to invest that money. To determine labor costs per hour, use the following formula:

labor cost per hour kpi

What Are The Advantages Of Utilizing Inventory KPIs?

Inventory KPIs are critical for increasing efficiency and company success. They give information that may be analyzed and used to improve overall business performance. You may take charge of the process when developing an inventory KPI measurement system while maintaining your company goals in sight.

• Improve Client Relationships: In a customer-centric firm, a happy customer is critical. Avoid unmanaged inventory, which results in disappointed clients when things are either postponed in shipping or out of stock for lengthy periods. Keep track of stock quantities and transaction record data to determine how much you require on-site.
• Improve Revenue and Sales Utilize sales inventory KPIs and analytics to help evaluate the marketplace and compete whereas maximizing the effectiveness of your sales staff. You can uncover trends of operational inefficiency by comparing data with previous reports.
• Enhance Employee and Operational Effectiveness: Utilize KPIs for employees and operations to enhance productivity and effectiveness. Evaluating inventory KPIs aids in the development of solutions to problems.
• Develop a Profitable Business: Inventory measurements and key performance indicators (KPIs) give more insight into your firm’s procedures and revenues. Install inventory control software to gather, track, and analyze KPIs and effectiveness.

Guidelines For Inventory KPIs

The finest inventory metrics techniques usually begin with measuring the correct items. Goals for each metric should be achievable rather than speculative. Push objectives should not be included in KPIs. There shouldn’t be more than 5-7 KPIs in each functional department.

Best practices for inventory KPIs

When the KPIs have been developed, it is critical to prepare employees for success. Ensure that they comprehend the aim, where you want them to go, as well as what skills they will need to get there. Set objectives that are not feasible or have no obvious road to accomplishment. Before introducing new KPI measurements to functional departments, you must first:

• Establish and record the metrics.
• Have employee participation in metric measurements, performance, and potential results.
• Training the staff that will be utilizing the analytics.
• Check that the team procedures are in line with the measurements.
• Create standards to aim towards.
• Adjust as needed. Create a review timetable for the results.
• Create a dashboard that displays the KPIs and their progress.

Conclusion

Inventory management software may significantly benefit your organization, but you must first choose exactly what you will track with it. While the inventory KPIs described above are vital to monitor, pay attention to additional KPIs that are important to your organization. These KPIs may be tracked using a set of tools supplied by inventory management systems.