Not all KPIs are created equal. Some are more important than others, and a good understanding of them is vital if you’re aiming to be an efficient and effective manager of your inventory. For example, one of the most important KPIs for business owners and managers is the “inventory level” metric. This is the number of units an item is stocked in your warehouse the lower your inventory level, the more cash that’s available to reinvest in other departmental activities.
What are KPIs?
A Key Performance Indicator (KPI) is a business term for a measure of how your company is doing. It is a quantifiable metric that helps you understand where your organization stands in terms of achieving its stated goals and objectives, and it can also indicate what you need to do to improve. To track KPIs, a warehouse management system can be used. This type of software is useful as it can provide real-time data analysis on various operations.
Why use KPIs?
A product’s popularity depends on the preferences and trends followed by people, so there can be a sudden increase or decrease in the demand, which will need to be met by maintaining a steady supply in inventories and warehouses. Using KPIs and an inventory forecasting solution could help strengthen and maintain stability in the supply chain. It could also help keep a tab on the possible need to restock a product, which might be in higher demand in the future.
KPIs are vital tools that help you monitor your business’s health and guide you towards performance enhancements. For those in the transport sector, understanding Key Performance Indicators (KPIs) and Inventory Management is critical. These KPIs might include sales revenue, the number of equipment out of service, outdated sales stock, customer complaints, and instances of customer non-compliance, among other metrics. They are instrumental for management to gauge if customer needs are being met, if operations are running at peak efficiency, and to identify when corrective measures are needed for improvement. Similarly, forecasting becomes an essential aspect, especially if you have a whole food retail business. KPI indicators related to inventory levels, sales trends, and customer preferences can help you determine the right quantity to order from wholesalers, such as opting for whole foods wholesale at Wanis. This strategic approach can ensure that you meet consumer demand and also contribute to better business performance by minimizing waste and optimizing stock levels.
Inventory KPIs for Your Business
Open-To-Buy
‘Open-To-Buy’ is a sub-category where a company has the inventory but has not yet finished the purchase or sale process. In this case, they can still make an inventory count, but the inventory is not yet counted as “in-use” (in the balance sheet). In the case of open-to-buy, the inventory count has to be done manually, and this process is time-consuming and error-prone.
Average Inventory
Average inventory is a web application that provides you with a dashboard that captures your entire supply chain. It uses data from a multitude of data sources to give you the ability to analyze and visualize your inventory levels. With that, you can know what’s going on at any one time and make adjustments as necessary.
Rate of Sale
The rate of sale (ROS) is a key performance indicator that can be used to evaluate inventory management activities. The ROS is a metric that indicates how quickly the inventory in a warehouse or other storage facility is being depleted. It is usually measured by the number of products sold over a period of time. You can also calculate by comparing the difference between the inventory at the beginning of the period and the inventory at the end of the period. The ROS is calculated as a ratio and is reported as a percentage.
Weeks of Supply
Weeks supply is the standard measure in business, but not all companies measure it the same way. The best way to determine your week’s supply is to think of it as the amount of inventory you have on hand and not just the amount of stuff ordered. This is true when you look at your orders as a whole and when you break it down into separate items, like in the case of a tiny startup with a lean ordering system.
Inventory Turnover Rate
This is the rate at which products are exchanged within an organization or between organizations. According to the U.S. Department of Transportation’s Bureau of Transportation Statistics, the average national inventory turnover rate in the transportation industry is 3.2 days to replace inventories. For example, airlines typically estimate that a typical flight will take three hours to replace, which would mean that the average inventory is used for only about 14 hours in a given month.
Stock to Sales Ratio
To understand how to estimate the ‘Stock to Sales Ratio,’ you need to understand the difference between the actual cost of goods sold and the cost of goods available for sale. The cost of goods available for sale is the real cost of goods sold, while the cost of goods sold is the real cost of goods sold in the period.
Inventory management is an important part of any business, particularly a large one. Whether you need to keep track of the number of units you have in stock, or you need to be able to quickly identify which product is out of stock at any given time, it is important to have proper inventory control. Without proper inventory control, a business can quickly lose money and be forced to sell off its assets.