Plus, you can use this plan to negotiate terms with your manufacturer that allow you to place smaller POs more often. With this plan, you can proactively work with your manufacturer to ensure they can fulfill your future purchase orders (POs). If you want to lower inventory holding costs, a better strategy is to build a 12-month operational plan (which Cogsy can help with). Not to mention it drives up inventory holding costs when the order finally arrives. This makes a stockout all but inevitable. Then, whenever you’re running low, receive the next replenishment just in time to avoid a stockout.īut this perfect scenario doesn’t always work in practice–not with unreliable supply chains or shifting consumer demands.Īnd when things go wrong, most brands react by ordering too much (and usually placing orders too late). Ideally, this means only keeping stock on hand that will actually sell in the next 90 days or so. So, to keep inventory holding costs down also means maintaining optimal stock levels. Inventory holding costs are directly tied to your stock levels. So, looking at the above list, let’s break down actionable ways you can improve each one. It depends on which metric you’re trying to move. Improving your inventory management KPIs isn’t a one-size-fits-all approach. How to improve your inventory management KPIs We go into more detail on how to track each of these KPIs in our original post, published on ShipBob’s blog. Stock To Sale Ratio = Average Inventory Value / Average Sales ValueĪverage Order Cycle Time = (Delivery Date – Order Date) / Total Orders Shipped How much one unit of inventory costs to manufacture or supplyĬost Per Unit = (Fixed Costs + Variable Costs) / Units Produced How much you’ll make on average by selling one unit of productĪverage Revenue Per Unit = Total Revenue / Total Units Sold The number of orders a brand can’t fulfill when a customer tries purchasing itīackorder Rate = Delayed Orders / Total Orders Placed Inventory Turnover Rate = Cost Of Goods Sold / Average Inventory Value = Number Of Units Sold / Average Number Of Units On Hand If a brand has too much inventory for the demand Using an inventory management system IMS, any SKU that is not selling Which SKUs aren’t selling despite being in-stock Inventory Shrinkage Rate = (Recorded Inventory – Actual Inventory) / Recorded Inventory Using an inventory management system (IMS) How much inventory is currently in stock to sell Safety Stock Needed= (Maximum Daily Usage x Maximum Lead Time) – (Average Daily Usage x Average Lead Time) How much excess product brands should keep on hand in case of supply chain issues Inventory Days On Hand = (Average Inventory For The Year / Cost Of Goods Sold) x 365 How quickly a business uses up its inventory levels on average If your inventory records match your actual inventory levelsĬompare physical inventory counts with records of inventory on hand, which is known as “inventory reconciliation” Lead Time = PO Processing Time + Production Time + PO Fulfillment Time + Supply Chain Delays How long it takes to receive orders from your manufacturer Using an inventory management system (IMS), any SKU you have zero of Which product offerings are currently unavailable Inventory Holding Cost = (Storage Costs + Employee Salaries + Opportunity Costs + Depreciation Costs) / Total Value of Annual Inventory How much it costs to store and protect unsold inventory So, which inventory KPIs should you track and intentionally improve? In collaboration with ShipBob, we identified 15 inventory management KPIs that every retail brand needs to keep a pulse on: Inventory KPIs But, long term, this laissez-faire strategy won’t be replicable (allowing you to do it repeatedly) or scalable (enabling you to grow). You can’t improve the inventory management KPIs you don’t track. Tracking and improving inventory KPIs enables brands to boost efficiency, maximize cash flow, and increase profitability. Key performance indicators (KPIs) are quantifiable inventory analytics companies use to gauge progress toward a specific goal.Įcommerce businesses use inventory management KPIs to gain insight into costs, turnover, customer demand, revenue, process, and supply chain efficiency. So, we’re revisiting those 15 most valuable inventory KPIs and diving deeper into how you can boost each one. In honor of our new integration with them, we are expanding on that because we realized that tracking those KPIs doesn’t do your business much good if you don’t, improve those numbers. By tracking and improving their inventory management KPIs, brands can boost efficiency, maximize cash flow, and increase profitability.Ī few months back, we did our friends over at ShipBob a solid and broke down the inventory management KPIs that every retail brand needs to track.
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