10 Inventory Management KPIs to track

14 March 2022

A stock KPI (Key Performance Indicator) is a performance indicator oriented on stock management in a warehouse. With the KPI it is possible to ensure an efficient control of the stocks as well as the incoming and outgoing goods.

What is an inventory management KPI

In inventory management, a key performance indicator (KPI) is a metric that monitors the availability of inventory and the receipt and release of products. This information facilitates decision making and thus improves logistics planning and inventory control based on actual warehouse performance. Proper monitoring of these indicators increases the productivity and efficiency of the facility.

Inventory-related KPIs are derived from the analysis of mathematical formulas and numerical results. Warehouse management is often digitized to convert this data into information. The implementation of warehouse management software (WMS) automates the data entry of all operations that take place in the warehouse.

Inventory management KPIs: 10 indicators to assess availability

1. Average stock

It corresponds to the average volume of products stored in the facility over a given period of time (frequently one year). This indicator gives factual information about the average quantity of products stored during the selected period.

Average stock = (initial stock + final stock) / 2

2. Optimal stock

This is the exact amount of stock a warehouse needs to meet demand without running out of stock. This KPI shows what is the optimal stock volume to maximize profitability while minimizing storage costs.

Optimal stock = optimal order quantity + minimum stock + safety stock

3. Stock shrinkage

It corresponds to the difference between the stock registered in the management software and the real stock available in the warehouse.

Stock shrinkage = (theoretical stock - real stock) / theoretical stock

4. Average stock loss

This KPI shows the stock lost or obsolete in the warehouse over a specific period of time (frequently one year). Inventory losses can be due to multiple causes, such as theft, spoilage or administrative errors.

Inventory loss = (quantity not supplied / quantity requested) x 100

5. Storage time

This corresponds to the period during which products remain in storage before being shipped. This indicator has a direct impact on the company's liquidity. The shorter the storage time in the warehouse, the lower the storage cost and therefore the higher the profitability.

Storage time = average daily value of inventory / (value of goods sold annually / 365)

6. Inventory turnover rate

Inventory turnover is an indicator that measures the speed of inventory replenishment over a given period. This indicator allows the logistics manager to assign a rotation category to each reference according to the ABC method, where A corresponds to a high rotation and C to the lowest rotation. This information allows an improved classification of products in the warehouse, according to their level of demand.

Inventory turnover rate = economic value of sold items / average value of stored items

7. Returned Stock Rate

This is an indicator that gives the percentage of orders returned to the facility after they are sold, due to a delivery or picking error. Reverse logistics is a big logistical challenge, especially with the normalization of free returns related to e-commerce. A high return rate means poor order management and, as a result, additional logistics costs that can hurt a company's competitiveness.

Return rate (%) = (number of returned items / number of sold items) x 100

8. Sales-through rate (STR)

Also known as the direct sales rate, this KPI gives the percentage of inventory sold versus the amount of inventory received from the manufacturer or supplier. This indicator can be used to detect trends in demand or changes in product turnover.

Sales-through rate (%) = (quantity of inventory sold / quantity of inventory received) x 100

9. Backorder rate

The backorder rate represents the volume of orders that are still waiting to be delivered because the product does not physically exist in the warehouse. A high backorder rate can be a sign of a poor inventory management strategy. However, some e-commerce companies have implemented backordering, an inventory management method that ensures goods are sold before they reach the warehouse.

Backorder rate (%) = (number of backorders / total number of orders) x 100

10. Service Level

This is an indicator that shows the likelihood that there is enough inventory available to meet the demand for a product. A high service level percentage means that the company is able to meet almost all of the demand generated for a given product.

Service Level = [(No. of items sold and delivered) / (No. of items sold and delivered + No. of items sold but not delivered)] x 100

Monstock is the inventory and flow management solution that accompanies you in the digitalization and transformation of your warehouses. Simple and intuitive to use, Monstock allows you to analyze your customer and purchase order history to propose orders accordingly.

For more information, contact the Monstock team.

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