Businesses can make better strategic decisions
by establishing key performance indicators (KPIs) to monitor inventory management. Tracking the right metrics enables businesses to improve cash flow and lower operating costs while also providing world-class services to customers.
However, if you are new to measuring inventory performance deciding which metrics to prioritize can be a daunting task.
The metrics you’ll need to examine will depend on the type of business you ran. For example if you are a high-tech retailer, your metrics will look different from those of consumer products retailers. So first, you’ll need to identify your key business functions and examine how you bring value to the customer.
What to Consider When Choosing Inventory Management Metrics
Before deciding on the KPIs to track, keep in mind that your choice will have a significant impact on your operations. Inventory metrics can have an impact on how everyone performs their duties.
As a result be sure to select metrics that encourage collaboration rather than escalating competition among employees and departments. That way, you can keep everyone focused on the same goals.
While it is easier to collect metrics for existing efficiency, it is more difficult to collect metrics for increased effectiveness. However, the latter is more beneficial to your company.
Don’t settle for metrics with too broad a scope because they won’t provide you with actionable insights. Make your key performance indicators (KPIs) SMART (specific, measurable, achievable relevant and timely).
Be wary of vanity metrics, which while making a specific department or process appears to be performing well, do not provide useful insights into the effectiveness of your inventory management performance.
Make sure to choose inventory software with an easy-to-use and customizable dashboard so you can effectively manage your metrics. Also, make it a habit to track and communicate your metrics across the organisation. Also create a graph that can show to representatives the significance of these vital bits of information and what they exclusively mean for execution.
It is essential to understand how your demand forecasts perform against real demand so you can fill any gaps. This metric also relates to your inventory conveying costs, which are one of the important elements of inventory management effectiveness.
An accurate demand forecast implies you are less likely to order excess inventory. Increased accuracy will also enable you to respond quickly when it is necessary to arrange more stock than expected and it helps to grow your business.
This measurement demonstrates how viably are you conveying finished, precise and harm-free requests to clients. Components making up a “Perfect order” include:
This metric is often measured in terms of net promoter scores or NPS.
Customer satisfaction levels should be evaluated across both distribution and selling channels and NPS score should be determined for each of these, independently, this empowers organizations to check and file client order-to-delivery times to check if they are as they should be, as an example.
There is a big difference between customer services that are merely good and those who offer world class services to customers.
This measurement estimates the occasions the stock is sold and supplanted-for example- “turned over”- in a specific period. It is a good measure of overall business efficiency. Higher turnover means greater efficiency.
Notwithstanding, this doesn’t mean that having a slower turnover is always an indicator of inefficiency. If you sell higher ticket items, they may spend more time on the shelf. But still makes a good profit for your business.
“Stocks Outs” identify with the recurrence of stock demands that happen without stock is accessible.
This can affect the whole inventory network and is baffling for clients who need to wait until an organization re-stocks their mentioned things. In that capacity, this can hugely affect client reliability. Reasons