What metrics are most important for Inventory Management?

Buying unnecessary inventory costs your business money. Conversely, inadequate inventory can lose sales. Accountants and analysts have developed a number of metrics for judging how efficiently your company controls its inventory. Possible measurements include lost sales, inventory turnover, industry comparisons, cycle time and the item fill rate.

The lost sales metric measures how many customers ask for an item, then go elsewhere because you don't have it in stock. Businesses using this metric often track back orders -- reserving part of the next scheduled shipment for the customer to purchase -- as well as lost sales. Using both metrics will give you an idea of the gap between your inventory and your customers' needs.

Turnover measures how fast your business uses up and replenishes its inventory. The higher the turnover, the less time your inventory spends sitting on the shelves. You can measure turnover by dividing the cost of sales into the value of your average level of inventory or by calculating the number of days of inventory supply you have on hand.

Cycle time is a measure of how fast you or your suppliers can complete a particular inventory process. The time it takes from a customer's purchase order submission to your company's delivery of the order is one important cycle, for example. You can break this down into several smaller cycles, such as the time it takes to process a purchase order, for more precise analysis.

The item fill rate is the percentage of items a customer ordered that your company was able to ship. The lower the ratio, the poorer your inventory performance. You should track not only the fill rate for each individual order but the fill rate for all orders -- what percentage of orders go out completely filled, and what percentage have items missing.

Your company doesn't exist in a vacuum. Industry comparisons take metrics, such as your cycle time or turnover rate, and compare them with other companies in your field. Determining how your metrics compare to your competitors' gives you a way to judge whether your inventory control meets the industry norm, falls short or exceeds it.

You can't manage inventory if you don't know what you have in stock. Good inventory management requires at least 95 percent accuracy. This mandates regular inventory counts, which you can do by taking a random sampling of stock and seeing if you spot anything missing. You should count the items that generate most of your sales several times a year; bottom-tier items only need an annual count.

If you’re managing a warehouse, there are many metrics you should monitor in order to ensure your processes are running smoothly and efficiently. Here are three of the most important inventory management metrics you should be watching:

1. INVENTORY LEVELS

This one may sound simple, but it’s vitally important to track how much you have of a given product. Tracking your inventory levels helps you know how much inventory you should have on hand, and it helps you to calculate seasonality and to understand other important aspects of your processes.

2. INVENTORY TURNOVER

The inventory turnover ratio tracks how quickly you are replacing inventory. It’s calculated by dividing your total sales by the average value of inventory on hand.

For example, if you sell widgets in a month and you have widgets in inventory, your inventory turnover ratio is0.. This means that in any given month you are selling% of your inventory of that widget. So, if you want to run a leaner operation, you could reduce the number of widgets you have on hand, say to, and increase your inventory turnover ratio. Your new ratio would be/, or0.. This would mean that you wouldn’t have to store as much inventory in your warehouse, but you also wouldn’t have as much inventory on hand so you are at a higher risk of a stockout.

3. CYCLE TIME

The cycle time is the time that it takes from when an order is first issued until it is completed. Cycle times can apply to many types of orders, including customer orders, purchase orders, manufacture orders and more.

For example, if you have a customer that requests your products, your cycle time would be from the date of the order until the time you actually deliver the order. This includes any time you may be waiting for raw goods to be delivered to you, plus assembly time, packaging and shipping time, and any other associated tasks.

Inventory turnover

Cycle time

Inventory accuracy

Item fill rate

wait more details from our expert

Inventory management is focused mainly on the associated planning and monitoring of stored items the same activities, so as to ensure the achievement of a set of objectives which crystallize in ensuring the fulfillment of the requirements established by the different materials as efficiently as possible and not wasteful, or misuse of funds invested in these materials

Following metrics are important in Inventory Management.

Lost Sales:

The Lost sale metric measures how many customers ask for an item, then go elsewhere, because you don't have it in stock. This metric gives you an idea of the gap between your inventory level and customer needs

Inventory Turnover:

Turnover measures how fast your inventory is getting replenished. The higher the inventory turnover, lesser the time your inventory sits up at your end. You can measure turnover by dividing the cost of sales into the value of your average average level of inventory or by calculating the number of days of inventory supply you have on hand.

Cycle Time:

Cycle time is a measure of how fast you or your supplier can complete a particular inventory process. The time it takes from a customer's purchase order submission to your company's delivery of the order is one important cycle, which again shall be subdivided into much smaller cycle for detailed analysis

Item Fill Rate:

The item fill rate is the percentage of the items a customer ordered that your company was able to ship. The lower the ratio, the poorer your inventory performance. The fill rate should be tracked not only for the individual order but for all orders, so that Orders that goes out with 100% fill rate and some missing items orders, both will be tracked.

Industry Comparisons or bench marking:

Industry comparisons on few metrics like turnover or cycle time will give the state of our business, where it stands with other competitors, results in finding out where we lag and where we need to focus to improve

Inventory Accuracy:

It is very important for every business to maintain high inventory accuracy (above 95% accuracy level) so that we need what is in our stock. High moving and high value items needs more frequent counting in a year ( say monthly or quarterly) and low value items shall be counted once in a year, so that an overall inventory level accuracy of more than 95% shall be maintained.

Agree with all the experts answer ////////////////////////

Well answer add by all champion