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Understanding your business’s inventory is critical to determining its pulse. Tracking key inventory measures like turnover rate, days sales of inventory (DSI), and gross margin return on investment (GMROI) can reveal valuable information for optimising stock levels and increasing profitability.
Explore our blog as we uncover the essential metrics/KPIs that can transform how you manage inventory, enhance efficiency, and improve customer happiness.
What are Inventory Metrics?
Inventory metrics are key performance indicators (KPIs) used to measure and manage the effectiveness of inventory management processes. These metrics help businesses track the efficiency of their stock levels, movement, and storage, ensuring optimal operations and cost control.
What is the Importance of Inventory Metrics?Â
- Improving Cash Flow: Effective inventory management can free up capital in excess inventories.
- Improving Operational Efficiency: Simplify processes and reduce inefficiencies in inventory handling.
- Forecasting Demand Accurately: Forecast client demand to ensure acceptable supply levels.
- Driving Profitability: Proper inventory management maximises revenues while minimising expenses.
- Managing Seasonal Variations: Adjust inventory levels as demand changes throughout the year.
Learn more about reverse logistics in supply chain management and how it optimises product returns, repairs, and recycling processes.
Top 10 Key Inventory Metrics to TrackÂ
Inventory Turnover Rate
The Inventory Turnover Rate is one of the most critical inventory metrics in warehouse operations because it indicates how quickly inventory is purchased and refilled over a specific period. It helps identify slow-selling products or instances of stockouts, influencing the overall effectiveness of inventory management.
Explore the six benefits of AS/RS systems and determine which AS/RS system is right for you. Learn how automated storage and retrieval systems can transform your warehouse operations.
A high turnover rate indicates successful inventory control since products flow in and out of the warehouse regularly, saving storage costs and reducing the likelihood of product obsolescence. On the other side, a poor turnover rate may indicate surplus inventory and inefficient warehouse space utilisation, leading to increased holding costs and waste.
Days Sales of Inventory (DSI)
It calculated the average number of days to sell the warehouse inventory. This inventory metric is pivotal to determining how the inventory moves within the warehouse.Â
A lower DSI indicates that things are sold quickly, which reduces storage time and costs. Efficient DSI management can result in better utilization of warehouse space and resources, ensuring that products are fresh and promptly available to customers.
A greater DSI, on the other hand, may imply slow-moving goods, which might take up valuable warehouse space and capital while potentially increasing handling and storage expenses.Â
Curious about warehouse management system costs? Explore our detailed guide to understand pricing factors and find the right solution for your business needs.
Gross Margin Return on Investment (GMROI)
This is one of the crucial inventory metrics for effective warehouse management, as it measures inventory profitability by comparing gross profit from sales to inventory cost.Â
It is calculated by dividing the gross margin by the average inventory cost.Â
A high GMROI indicates good inventory management and profitability, allowing for better inventory purchase and stock level judgements.Â
In contrast, a low GMROI may suggest problems with pricing, product selection, or inventory management, underlining the need for changes to boost profitability.
Stockouts
They usually occur when inventory levels reach zero and customer demand cannot be determined or satisfied appropriately.Â
This inventory metric plays a pivotal role in effective warehouse operations. It streamlines inventory since frequent stockouts can result in lost revenue, customer dissatisfaction, and potential damage to the reputation.Â
Monitoring and analysing the stockouts to ensure optimum inventory levels is essential for adequate client satisfaction.Â
Backorder Rate
This refers to the percentage of orders that cannot be completed at purchase due to low warehouse inventory levels.Â
It is one of the most critical inventory metrics because it shows how frequently consumers must wait for items to be refilled before they can complete their orders.Â
A high backorder rate indicates inventory management concerns, which may cause consumer unhappiness. Reduced backorders lead to higher customer satisfaction and a more stable supply chain.
Carrying Cost of Inventory
This is the entire cost of holding a set of inventory in the warehouse over a given timeframe. It includes storage, insurance, taxes, depreciation, and opportunity costs.Â
It is one of the pivotal inventory metrics as it provides valuable insights into the financial management of the inventory. High carrying costs may indicate inefficiencies, such as overstocking or low turnover, resulting in wasted expenses. Warehouses can reduce costs and enhance revenues by tracking and optimising carrying charges.Â
Order Accuracy Rate
This inventory indicator determines the percentage of orders properly chosen, packed, and sent from the warehouse. This statistic is critical for ensuring customer happiness and increasing operational efficiency.Â
A high order accuracy rate shows that warehouse processes are reliable and efficient, reducing the need for costly returns and reshipments. In contrast, a low order accuracy rate can lead to customer dissatisfaction, more returns, and higher handling costs, highlighting the importance of improving inventory management and order processing. Â
Rate of Return
The Rate of Return calculates the percentage of products customers return to the warehouse. This measure is crucial since it offers information on product quality, customer happiness, and order fulfilment accuracy. Many returns may suggest product faults, erroneous shipments, or misaligned client expectations.Â
Fill Rate
The Fill Rate is the percentage of client orders that can be fulfilled with available inventory without backorders. A high fill rate implies that the warehouse consistently has adequate stock to match order requirements, resulting in increased customer satisfaction and fewer delays.
Average Inventory
Average Inventory is the average value of inventory maintained in a warehouse for a given period, commonly derived by averaging the beginning and ending inventory values for that period. This statistic is critical for determining how much money is locked up in inventory and calculating inventory turnover rates.
Conclusion
Collaborating with Addverb Technologies can help you transform your operations by incorporating cutting-edge robotics and automation solutions.
Utilise our global knowledge to improve your supply chain’s inventory efficiency, dependability, and accuracy, assuring continuous operations around the clock.Â
Whether you want to automate warehouses, streamline logistics, or innovate with robotics, Addverb Technologies provides vital assistance and solutions adapted to your needs.
FAQ
1. What are inventory metrics?
KPIs that track inventory performance to optimize stock, reduce costs, and improve efficiency.
2. What is Inventory Turnover?
It measures how often inventory is sold and replaced in a period.
3. What is Days Sales of Inventory (DSI)?
DSI calculates the average days to sell inventory, indicating sales efficiency.
4. How does the Stockout Rate affect operations?
It shows the percentage of unfulfilled orders due to low stock, impacting customer satisfaction.
5. What are the Carrying Costs of Inventory?
The total costs of holding inventory, including storage and opportunity costs.
6. What does GMROI measure?
It assesses how much profit is generated from inventory investment.
7. What is the Perfect Order Rate?
The percentage of error-free, on-time deliveries.
Founded in 2016, Addverb offers complete robotics solutions for warehouse and industrial automation, with a strong global presence through its subsidiaries worldwide. The company provides a range of in-house automation products, including Autonomous Mobile Robots, ASRS, and sorting technologies. It serves over 350+ clients, including well-known companies such as Coca-Cola, Amazon, and DHL.
