Unlock Inventory Management Success
through Key Performance Indicators

Inventory management KPIs (Key Performance Indicators) help measure and evaluate the effectiveness and efficiency of inventory management practices in a business.

Here are some commonly used KPIs in inventory management:

Inventory Turnover Ratio:

This measures how quickly inventory is sold and replenished within a given period. It is calculated by dividing the cost of goods sold (COGS) by the average inventory value. A higher turnover ratio indicates efficient inventory management.

Gross Margin Return on Inventory Investment (GMROII):

This assesses the profitability of inventory by measuring the gross margin earned per dollar invested in inventory. It is calculated by dividing the gross margin by the average inventory value and multiplying by 100. A higher GMROII indicates effective inventory utilization.

Stockout Rate:

This measures the frequency or percentage of times a product is out of stock during a specific period. It helps identify the effectiveness of inventory planning and forecasting. A lower stockout rate indicates better inventory management.

Carrying Cost of Inventory:

This calculates the expenses associated with holding inventory, such as warehousing, storage, insurance, and obsolescence costs. It helps evaluate the financial impact of inventory and highlights the need for optimization.

Order Fill Rate:

This measures the percentage of customer orders that are filled completely from available inventory without any stockouts. A higher order fill rate indicates better customer satisfaction and efficient inventory management.

Lead Time:

This measures the time taken from placing an order to receiving it in inventory. Tracking lead time helps identify bottlenecks and delays in the supply chain, enabling better planning and inventory management.

Accuracy of Demand Forecast:

This assesses the accuracy of demand forecasts by comparing the forecasted demand with actual demand. It helps in optimizing inventory levels and avoiding excess or insufficient stock.

Supplier Performance:

This measures the reliability and effectiveness of suppliers in terms of on-time delivery, quality of products, and adherence to agreements. A supplier’s performance directly affects inventory management.

Cycle Time:

This measures the time required to complete a full inventory cycle, from ordering to receiving, storing, and selling the products. Reducing cycle time improves operational efficiency and cash flow.

Dead Stock:

This quantifies the value or percentage of inventory that has not been sold within a specified period. Identifying and minimizing dead stock helps optimize inventory and reduce carrying costs.

Cross Reference:

This measures the percentage of spares identified with an alternative manufacturer and manufacturer part number. This includes changes from the original equipment manufacturer (OEM) generated from product enhancements, new software installations, or superseded parts.

These are just a few examples of inventory management KPIs, and the selection of KPIs may vary depending on the industry, business model, and specific objectives of the organization. It is important to align the chosen KPIs with the overall business strategy and regularly track and analyze them to drive improvements in inventory management processes.

Partner with RIGSERV and we will help you establish your industry specific inventory management KPIs. We have experienced people, documented and proven processes, and modern in-house design technology to help you lift and move your inventory to the next level.

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