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7 Essential Inventory Management Metrics for Your Business

Posted: February 13, 2020 by Ly Phan

7 Essential Inventory Management Metrics for Your Business

Many businesses have the desire to streamline their warehouse management process. However, attempting to overhaul operations can be complex, so using metrics to help break it down into smaller targets will lead to achieving the overall objective. It’s essential to keep focused on the inventory management metrics that influence the performance of your business. Focusing on the right metrics will ensure your company falls on the right side of the profit margins and enable growth.

 

Why Metrics Matter?

Inventory management metrics have a crucial role to play in the health of the business, helping to shape the final financial figures and reports. By breaking down the numbers and focusing on the underlying key performance indicators, warehouse managers will be able to take a proactive approach in ensuring maximum efficiency.

For example, one of the core functions of a distribution center is shipping and ensuring the items are delivered to the right place, on time. Therefore, the aim should be to provide high shipping accuracy and speed, which can only be measured by focusing on the relevant metrics. The pattern can then be repeated across the multitude of processes that occur in warehouses, such as putaway, pick and pack, right through to the management of dead stock.

Each of these processes has a tangible impact on the bottom line of your business. By breaking down the metrics to cover the different elements of warehouse operations, managers can take a proactive approach and have a positive impact on profit margins.

 

Which Metrics?

While there will be slight variations in the types of metrics different businesses need to focus on, there is a core set of inventory management performance indicators relevant for all warehouses. Each one covers a key process in the movement, storage, and delivery of products. 

1. Time to Putaway

The first stage of inventory management is the vital receiving and putaway process. The time it takes to take the inventory from the delivery areas to the right shelves will lay the groundwork for your warehouse operations. 

2. Time Spent in Storage

The role of warehouses and distribution centers is to act as a hub for the movement of goods through the supply chain. Therefore, the priority should be to move the inventory through as quickly as possible, minimizing the time spent in storage. The longer it sits on the shelves, the more it costs your business. The central aim here should be to reduce the level of dead stock.

3. Stock Levels

An essential component of inventory management is having the right level of stock at all times. Striking a balance can prove to be a challenge, but with the right software, you can forecast the flow of demand and stock accordingly. Factoring in events like holidays and trends, together with clear lines of communication between warehouse teams and suppliers, your business will be able to maintain the optimum level at all times.

4. Pick and Pack

This particular metric could be split into two parts:

  1. Speed: The time it takes to locate and pick the items.
  2. Accuracy: The percentage of times the pick and pack process is completed without any errors.

The findings can reveal much about the layout of the warehouse and how your teams are divided. For example, by analyzing the amount of time it takes for workers to locate and take the items to the packing area, you can identify whether the products are placed in the right areas. If workers have to travel further for the more popular products than less popular ones, then it might be time to review the layout. 

5. Shipping Accuracy

For warehouses and distribution centers, the final stage is the delivery of inventory. Once again, the emphasis should be on accuracy and speed. By focusing on this metric, teams will be able to identify optimal routes and delivery times in order to get products to the customers as efficiently as possible. 

6. Order Fulfillment

The overall objective of the inventory management process is to satisfy the needs of the end customer. Quickly and efficiently fulfilling orders is essential to maintain customer satisfaction levels. In today’s competitive retail climate, the emphasis is on distribution centers to achieve the highest possible percentage of order fulfillment. 

With SmartTurn, clients have been able to increase their accuracy to over 99%, which means a higher customer satisfaction rate, reduced losses due to errors and higher profit margins. In short, achieving this unprecedented level of accuracy will help your business become a lean, efficient and profit generating operation.

7. Inventory Carrying Costs

Inventory carrying costs is the calculation of the value of inventory that’s sitting on the shelves, rather than going into other aspects of your business. It’s more than merely adding up the value of the items themselves; it includes additional inventory metrics such as:

  1. Putaway
  2. Storage
  3. Pick and Pack

There is a common formula which is used to work out carrying costs:

Capital Costs + Taxes + Insurance + Warehouse Costs + Recovery Costs)/Average Annual Inventory Costs = Inventory Carrying Cost

The reasoning behind this is that handling inventory takes up resources, including time, workers, and storage space. By analyzing the carrying costs, companies have the opportunity to reduce those costs to free up capital for other, more profitable aspects of the business.

 

Building Towards a Robust System

inventory management is important

These inventory management KPI examples serve as building blocks towards a robust and efficient system. By utilizing SmartTurn’s powerful solution, businesses can use software to track and analyze metrics to improve their operations smoothly. 

Aided with technology, the rewards of focusing on warehouse management metrics can be seen throughout the supply chain. SmartTurn clients report saving up to $15,000 a month in efficiency savings, equating to $180,000 a year. The key is to utilize the information the metrics deliver and let it drive your inventory management strategy.

It’s also essential to monitor the metrics continually and to constantly strive for improvement. Once again, SmartTurn makes this process easier with a fully customizable dashboard containing all the information you need. Taking these steps will lead to a lean, efficient inventory management system that’s an asset to your business.

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