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Key Performance Indicators for Inventory |
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Inventory is
one of the most significant costs for many businesses so
ensuring its optimization is often a key company objective.
Luckily there are a variety of key performance indicators (KPI’s)
that can be used to assess inventory performance, whether
focusing on the economics or performance of stock. Below we
list 5 commonly used KPI’s – if you have others that you’d
like to tell us about be sure to use the comments section
below. |
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1. Inventory
Turn over
Inventory Turn tells you how many times inventory has been
sold and replaced in a given period – calculated as Sales
divided by average inventory value – whilst mileage may vary
depending on the industry a low inventory turn can be
indicative of holding too much stock (or stock of the wrong
type).
2. Stockouts
Stockouts indicate where a demand cannot be met due to the
absence of the required inventory – monitoring these will
tell you if you have the right mix |
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of stock type
and quantity.
3. Service Level
Service levels can be calculated per individual customer and
is calculated by reviewing the number of times an item has
been issued divided by the number of times it has been
demanded – a low service level will indicate that customers
invariably have to wait for parts and that inventory held
could be of the wrong type.
4. Lead Time
Lead time is the length of time it takes to obtain inventory
from suppliers – Long lead times can result in holding
excess inventory (impacting cost and service level) |
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5. Stock Cover
Stock cover is the length of time that inventory will last
if current usage continues – this is an important indicator
as it helps appraise the impact of changes in lead time or
the potential for running out of stock. |
