GITNUX MARKETDATA REPORT 2023

Must-Know Inventory Performance Metrics

Last Updated: October 31, 2023

Written & Summarized by: Jannik Lindner

How we write

Download Image

Highlights: The Most Important Inventory Performance Metrics

1. Inventory Turnover
2. Days Sales of Inventory (DSI)
4. Fill Rate
5. Stockout Rate
6. Backorder Rate
7. Carrying Costs
8. Order Cycle Time
9. Inventory Accuracy
10. Safety Stock
11. Sell-through Rate
12. Economic Order Quantity (EOQ)
13. Average Inventory
14. Lead Time
15. Shrinkage Rate

Inventory Performance Metrics: Our Guide

Understanding your inventory’s performance is key to the success of any business dealing with products. In our latest blog post, we explore the essential Inventory Performance Metrics that drive profitability and efficiency. Join us as we delve into these metrics’ wonders, helping you better comprehend their importance and how you can utilize them to optimize your business operations.

Inventory Turnover

This metric tracks inventory turnover: high is good (strong sales, efficient inventory), low is bad (weak sales, excess inventory).

Days Sales Of Inventory

DSI measures the average number of days it takes a company to sell its inventory. A lower DSI indicates a more efficient sales process and inventory management.

Gross Margin Return On Investment

This metric calculates ROI from inventory decisions. Higher GMROI means more profit from inventory investment.

Fill Rate

This measures the % of stockout-free customer orders. A high fill rate signals effective inventory control and meeting customer demand.

Stockout Rate

This metric calculates item stockout percentage. Higher stockout rate signals inventory issues or supplier and demand forecasting problems.

Backorder Rate

This measures the percentage of orders not fulfilled on time due to the item being out of stock. A lower backorder rate indicates better inventory management and higher customer satisfaction.

Carrying Costs

These are inventory holding costs, like warehousing, insurance, personnel, and obsolescence. High carrying costs may indicate inventory management inefficiencies.

Order Cycle Time

This measures order processing and delivery time. Shorter cycle time signals efficient inventory and order management.

Inventory Accuracy

This metric shows item accuracy in your warehouse. Higher accuracy means a better inventory control system.

Safety Stock

This measures buffer stock to prevent stockouts and meet demand spikes. Higher safety stock indicates conservative inventory management.

Sell-Through Rate

This measures the percentage of units sold in relation to the initial stock on hand. A higher sell-through rate indicates strong sales performance or effective inventory management.

Economic Order Quantity

EOQ is the best order quantity to minimize costs and enhance inventory management.

Average Inventory

This metric finds the average inventory held. Optimal levels cut costs while meeting demand.

Lead Time

This is the time from order to warehouse arrival. Shorter lead time prevents stockouts and aids inventory decisions.

Shrinkage Rate

This measures the percentage of inventory lost due to damage, theft, or other causes. A lower shrinkage rate indicates better inventory control and warehouse management practices.

Frequently Asked Questions

What are inventory performance metrics and why are they important?

Inventory performance metrics are quantifiable values that provide insights into how efficiently a business is managing its inventory levels. These metrics are crucial for optimizing the supply chain, preventing stockouts and overstocks, reducing holding costs, and improving customer satisfaction.

What are some common inventory performance metrics that businesses should monitor?

Some common inventory performance metrics include inventory turnover ratio, days of inventory on hand, fill rate, stockout rate, and average inventory age. These metrics provide insights into inventory movement, stock levels, and the effectiveness of the overall inventory management strategy.

How can businesses use inventory performance metrics to improve operations?

By regularly monitoring these metrics, businesses can identify areas for improvement and make data-driven decisions to optimize inventory levels, enhance supply chain efficiency, and increase profitability. For instance, a high stockout rate may indicate the need to adjust safety stock levels or reevaluate supplier relationships, while a low inventory turnover ratio could suggest that demand forecasting techniques need to improve.

How often should inventory performance metrics be monitored, and do they vary by industry or business size?

The frequency of monitoring inventory performance metrics depends on the specific metric, industry, and business size. Some metrics like fill rate and stockout rate require real-time tracking, while inventory turnover ratio and days of inventory on hand can be analyzed monthly or quarterly. Each industry and business will have unique monitoring needs based on factors such as sales volume, inventory type, and supplier lead times.

Can technology play a role in tracking and improving inventory performance metrics?

Yes, various software tools, such as inventory management systems and warehouse management systems, can help businesses automate the collection and analysis of inventory performance metrics. These tools provide real-time data, generate reports, and support data-driven decision-making to optimize inventory management processes, reduce costs, and improve overall business performance.

How we write these articles

We have not conducted any studies ourselves. Our article provides a summary of all the statistics and studies available at the time of writing. We are solely presenting a summary, not expressing our own opinion. We have collected all statistics within our internal database. In some cases, we use Artificial Intelligence for formulating the statistics. The articles are updated regularly. See our Editorial Guidelines.

Free Test

Leadership Personality Test

Discover your leadership style and skyrocket your career in 10 under minutes 🚀