Inventory Metrics that Drive Growth: 5 Vital KPI’s

Below you’ll find the 5 most important inventory Management KPIs, a simple explanation of what they measure, how to calculate them, and how SKULabs can help your team improve these metrics. We know scaling your business can be an exciting journey, but it comes with its fair share of challenges. One key aspect that can make or break your scaling efforts is efficient inventory management.

We have ranked the 5 most important KPIs (Key Performance Indicators) to scaling your business through smart inventory management. Easily implement these metrics to have an immediate impact on your bottom line and help you take your business to the next level! 

KPI # 5: Fill Rate

Measures the percentage of fully filled orders

Calculation Formula:(Number of Orders Filled in Full / Total Number of Orders) * 100

A low fill rate can result in customer dissatisfaction and lost sales opportunities. When customers place orders, they expect timely and complete deliveries. A failure to meet these expectations can lead to order cancellations, potential refunds, and harm to your reputation. Ensuring a high fill rate is essential for retaining customers and maximizing revenue.

SKULabs order fulfillment management simplifies order processing, ensuring high fill rates by efficiently managing inventory availability and order prioritization.

KPI # 4: Carrying Cost of Inventory

Calculates the cost of holding inventory

Calculation Formula:(Average Inventory Value x Carrying Cost Percentage) / 100

High carrying costs can eat into your profits and tie up capital that could be used more effectively elsewhere in your business. These costs, which include storage fees, insurance, and depreciation, can become a significant financial burden. By reducing carrying costs, you can free up capital for investments in growth, innovation, or other strategic initiatives.

SKULabs inventory optimization feature identifies slow-moving items, allowing you to reduce storage costs. By optimizing inventory levels, SKULabs helps lower carrying costs.

KPI # 3: Inventory Accuracy

Measures the accuracy of recorded inventory count

Calculation Formula:(Actual Inventory Count / Recorded Inventory Count) * 100

Inaccurate inventory counts can have significant repercussions. If you think you have more inventory than you actually do, you may not reorder products when needed, leading to stockouts and lost sales. Conversely, overestimating inventory can result in overordering, tying up capital and potentially leading to increased storage costs. These inaccuracies can also affect your financial reporting and tax calculations, impacting your business’s overall financial health and compliance.

SKULabs inventory tracking with barcode scanning ensures precise recording of inventory movements. This feature reduces discrepancies between physical and recorded counts, improving inventory accuracy.

KPI # 2: Stockout Rate

Calculates the percentage of orders with stockouts

Calculation Formula:(Number of Stockouts / Total Number of Orders) * 100

Avoiding stock outs is crucial to maintain customer satisfaction and revenue. It’s especially important for businesses with high demand variability. Stockouts can have a direct impact on your bottom line. When customers can’t find the products they need, they may turn to competitors, resulting in lost sales and potential long-term customer loss. Stockouts can also disrupt your supply chain and lead to expedited shipping costs to fulfill orders, further eroding profitability. Additionally, frequent stockouts can damage your brand’s reputation and customer trust, which is often challenging to rebuild.

SKULabs can help reduce stockouts by sending automated low-stock alerts. These alerts prompt you to replenish inventory before it runs out, ensuring a higher stockout rate.

KPI # 1: Inventory Turnover Rate

Measures how often inventory is sold and replaced

This is often considered the most critical KPI as it directly reflects how efficiently you are using your inventory to generate sales and manage working capital. The inventory turnover rate measures how efficiently you’re utilizing your inventory. 

Calculation Formula: COGS / Average Inventory Value 

A low inventory turnover rate means you’re tying up valuable capital in slow-moving inventory. This can lead to increased holding costs, including storage fees, insurance, and depreciation. Additionally, slow turnover can result in the risk of products becoming obsolete or unsellable, which can cause financial losses. On the other hand, a high turnover rate indicates that you’re selling inventory quickly, optimizing cash flow, and minimizing holding costs. It allows you to allocate resources to other areas of your business and prevents your capital from being tied up unnecessarily.SKULabs can help optimize your inventory turnover rate through demand forecasting. By analyzing historical sales data and demand patterns, SKULabs can recommend optimal reorder quantities, ensuring you maintain the right balance of stock.

Remember that the importance of these KPIs can change over time as your business evolves and faces different challenges. It’s crucial to regularly assess and adjust your focus based on your business’s current priorities and objectives. Additionally, the interplay between these KPIs should be considered when making inventory management decisions.

With the right inventory management strategies and tools in place, you can easily implement and improve your business processes! 

Connect with SKULabs Today

Now is the perfect time to discuss how we can help you get prepared for taking your business to the next level!

Chat with one of our experts today. Schedule a meeting or give us a call at 1800-243-2986 to learn more.