The flow of goods keeps a business running similar to how the flow of blood keeps life going. Inventory is the intermediary stage in this flow that helps keep it smooth. It is the ideal buffer between the production line and the shipping stages of the product life-cycle. And it can contain so much more.
Inventory data is critical to understanding the status of the business. There are multiple parameters to keep track of to get a clear idea of all that’s happening. These parameters or metrics vary continuously, making the task of tracking them even more difficult. You’ll need a comprehensive inventory analysis solution to succeed at overcoming this challenge.
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Grow With the Flow
Scaling up is a trying process for any business. It is that much harder for those into production as inventory management becomes all the more challenging. An inventory analysis solution helps get a grip on the entire process through the assistance or self-management of every inventory-related metric vital to growth.
Turnover
This KPI denotes the number of times inventory has experienced sales or returns within a given period. It gets calculated using the formula (Cost of Items Sold/Avg. Inventory) or (Sales/Inventory).
This metric is measured on an annual basis since that gives the most accurate results. Some might choose to do it quarterly as well but will suffer from low accuracy. A low turnover indicates that the sales are not good or that the company has too much stock.
And any stockpile that sits for long eats up space while accruing losses for doing so. Products with expiration dates are a pressing burden under such circumstances; they don’t even have sale prospects, unlike their non-expiring counterparts.
Average Days to Sell
This is a measure of the time taken by the company to turn the inventory into sales. It gets calculated using the formula (Inventory/Cost of Sale) x365. This metric varies depending on the industry a company operates.
An FMCG company, for example, has to maintain a low value since expiration dates are involved. They also tend to be small, so quickly moving them shouldn’t be a problem. Large, non-perishable items like TVs and laptops, on the other hand, can sit for a while before being bought. Such differences, while performing the calculations, must be considered.
Stock-out
Stock-out refers to the instance of not having enough inventory to meet the demand. Many reasons could be the cause of this situation, like low production rate, limited initial production number, unexpected increase in customer demand, delays in production, etc.
It can have severe short and long-term consequences like missed sales opportunities, losses due to the missed sales, loss of customer trust in the business, giving an upper hand to the competition needlessly, and the like. Predictive analysis of customer behaviour and other factors can combat the rise of such situations.
Lead Time
This crucial KPI deals with the supply side of things. It is the sum of the time a supplier takes to deliver an order once it gets placed and the time that transpires before the need to reorder surfaces.
The health of the supply chain hinges on this critical metric, as does overall inventory control.
Return Rate
Due to defects, dissatisfaction, or inability to correctly deliver an item, returns happen. And the more it takes place, the bigger the problem in your inventory. The return rate keeps a tab on percentages of returned orders that require restocking.
The reasons associated with the return are also catalogued to help make improvements wherever necessary.
Customer Service Level
This one helps relate your inventory protocols and your customers‘ response to them. Customer-based factors like reviews, returns, delivery schedules, exchanges, and others provide direct insight into how your products and supply chain methods connect with your customer base.
Converting inventory from stock to sale is a difficult task. Inventory analysis solutions can help ease that process by keeping all associated KPIs in check.
