There are several inventory metrics available. In the world of data and analytics, the more you track, the better; as long as you’re able to analyze and gain insights from the data you’re tracking. To narrow it down to the top 5 inventory metrics retailers should measure, it would likely be these: inventory on hand, turnover, days of supply, cycle time, and gross profit.
1. Inventory on Hand
Inventory on Hand, or Stock, will tell you what you currently have available. In a perfect world, this would be updated in real-time, so you and your customers are never left wondering what is available or how much. This will also help you reduce quantity errors in ordering.
Turnover will let you know how quickly you’re likely to go through that stock and how much time products tend to sit on your shelves or in your warehouse before customers are buying them. If you know your Turnover Rate, you’ll be able to reorder stock as needed, in the amounts you need, and ensure you’re never left on the hook.
3. Days of Supply
Days of Supply is another useful inventory metric that helps you manage your inventory more effectively. Days of Supply refers to the number of days your current stock would last if it was not replenished. This metric is particularly helpful in case of a supply chain disruption – it will let you know how long you can maintain normal operations with your current inventory.
This is also helpful for proactive inventory management; you can calculate how long you might need to maintain normal operations after disruption, figure out how much inventory that would take, and keep that amount in-stock. It’s like having emergency savings accounts for your top products.
4. Cycle Time
Cycle Time helps you manage inventory and provide accurate information to the customer. If you know how long it really takes from initial order issue to fulfillment, then you can communicate that accurately to the customer so they know what to expect.
Plus, you’ll have a better idea of the lifecycle for your product to better manage inventory on hand and perhaps improve your fulfillment processes. For example, if one of your top products has a long Cycle Time, or the average Cycle Time for a product starts to increase, it could indicate an issue somewhere in your fulfillment process.
5. Gross Profit
Lastly, Overall Gross Profit and Gross Profit Margin Per Product are important. You’ll need to know the Cost-Per-Unit and the Revenue-Per-Unit to calculate these numbers. However, once you have them, you’ll know which products are your largest generators of profit and which ones aren’t. You may be able to identify products you can pair together to increase profit or products you can use for BOGO offers or discounts. You may even find there are products you shouldn’t even bother restocking!
In an ideal situation, these inventory metrics would be readily available to you in a dashboard you could monitor every day. Preferably, you would also be able to view changes over time to identify trends and potential problems so you can fix them before they become larger issues. Checking and analyzing your data this way allows you to improve the function of your store and provide a better experience for your customers.