Business MetricsMetrics

10 Smart Ways to Resolve Inventory Management Gaps

The best way to identify how your business is doing is by looking at the inventory management. Software applications and KPIs bring in desired work behaviors, decision-making, and strategic planning. In this article at Select Hub, Louis Columbus discusses 10 smart KPIs and metrics to resolve inventory management gaps.

Choosing Inventory Management KPIs

The correct inventory management tools improve timely deliveries, customer experience while lowering operational costs. The American Production Control and Inventory Management Society (APICS) SCOR Model is a popular framework. Some vouch for Gartner’s Hierarchy of Supply Chain Metrics. Nevertheless, consider the following while you are choosing inventory management metrics:

  1. Measuring activities related to inventory can change workplace behavior. Look out for negative impacts.
  2. KPIs are generally used to measure work efficiency but measuring work quality is more important.
  3. Broad KPIs do not shed light in specific areas that need immediate attention.
  4. Do not encourage metrics that induce interdepartmental rivalries. Instead, focus on those that enable cooperation.
  5. Stock management metrics should focus on inventory alignment with strategic goals.
  6. Vanity metrics do not give realistic insights into the efficiency of inventory management, supply chains, or production efforts.
  7. Ensure you have a customizable inventory management KPI dashboard.

10 KPIs:

  1. Demand Forecast Accuracy: This inventory management metric detects gaps in real and actual demands. It helps to improve operational ability and reduces inventory carrying costs.
  2. Customer Satisfaction Levels: It measures customer experience for all distribution and selling outlets to check if you have achieved the promised delivery expectation.
  3. Perfect Order Performance: This measures if you delivered ‘complete, accurate and damage-free orders’. As per American Productivity and Quality Center (APQC), the majority of the companies have over 90 percent delivery success rate. To measure this metric, use the following formula:

(% of orders delivered on time) x (% of orders complete) x (% of orders damage free) x (% of orders with accurate documentation) x 100

  • Fill Rate Effectiveness as a Percentage of All Orders: It calculates the number of orders your production centers have completed.
  • Gross Contribution Margins (GCM): This inventory management metric measures the collaboration density among business units.
  • Order Cycle Time: It measures the time between customers placing single or multiple orders and receiving them.
  • Order Pick, Pack, and Ship Accuracy: This reveals your warehouse efficiency in picking up the order, packing it, and shipping it to the right address.
  • Inventory Turnover: You can find out the number of times your inventory was sold, replaced, or turned over for a given period. Higher turnover means a higher efficacy. Sales by Average Inventory and Cost of Goods Sold (COGS) are good KPIs.
  • Carrying Cost of Inventory: This realistic metric reveals how much of your capital is attached to the inventory.
  • Supplier Quality Index: Track supplier performance with this metric by calculating the number of item disputes or returns.

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