7 KPIs for efficient inventory management

6 minutes to read

From the point of view of the logistical process, it is impossible to maintain the operation without support and without information from the warehouse area. For this reason, efficient inventory management takes on a strategic character, a factor that is recognized by professionals working in the area.

This is a scenario in which errors and poorly managed resources can cause damage to the organization and damage the relationship with the customer. To make this possible, there are some ways to make a more careful and reliable monitoring – and one of the best is the use of inventory KPIs.

Understanding a little more about these indicators is very important to develop a plan aimed at optimizing the company’s goods flow. So, let’s talk about the 7 best KPIs to be followed for you to achieve great results thinking about them today. Check them out!

Indicators of efficient stock management

In the corporate world there are KPIs (Key Performance Indicators). This concept is essential for the management of any business, as it makes it possible to measure the factors that really matter, hence the use of the term “key indicators”.

KPIs can be used to assess productivity, quality and productive capacity. In addition, it is important to compare the results obtained with the goals of the area to identify any deviations and bottlenecks in the process. To demonstrate how it works in practice, we have listed the main indicators related to inventory management so that you can learn more about results.

1. Resupply

The resupply point is one of the most important indicators for any entrepreneur. Known as PR, it is based on an assessment of the daily demand for a given material and the average duration of the activity cycle.
Let`s suppose that, on average, 10 units of a commodity are sold per day: at the end of the week, 50 units will be needed to meet customers’ requirements. This indicator allows for a more accurate inventory planning, always seeking to avoid the lack of goods.

2. Refueling

Empty stocks result in the loss of new customers and the difficulty of maintaining old ones. Therefore, the manager needs to know when the refueling should be done because doing it early can lead to loss of products; difficulty in optimizing storage space and increased control and security expenses.
This delayed action leads to an inability to meet customer needs, which is disastrous for any business.

You should always keep in mind that the resupply indicator should be your ally for timely refueling. Through them, it is possible to understand what should or should not be supplied and when it can occur. A good tip is to monitor your suppliers to see if they can keep up with your demand.

3. Inventory turnover

Inventory turnover is an analysis of turnover: how long each product has been on the shelf and how often it must be renewed. The idea is to understand which products are most and least sought after in order to plan ways to increase these rates, allowing to develop logistics with more competitiveness.

Imagine a reference construction company selling paint cans. When making this analysis, the manager notes that the output of brushes is below average: he can then offer bundled sales, greater discounts for the purchase of materials together, etc.

4. Rate of return

This is one of the indicators among the KPIs for inventory management that guarantee the business differential. The rate of return is nothing more than the quantity of products that, despite being sold, return for some reason due to reverse logistics.

To reach the exact value, the calculation is made by dividing the number of items returned by those sold and multiplying by 100, to have the percentage of reversal. Ideally, this rate should be close to 0, indicating the low return rate. Thus, the manager can plan to deal with low acceptance products, being able to identify the main reasons and act to solve them in the most efficient way.

5. Stock accuracy

The purpose of stock control for an industrial company is to ensure the availability of:

. materials to supply the production line: in this scenario, the purchasing sector acts to ensure that inputs, parts and equipment are available to meet production planning. This is because the lack of materials can result in the interruption of the process and delays in customer service; and

. products for sale: it is the guarantee that the company can meet customer orders, as it has items ready for dispatch and sale.
The analysis of this indicator is related to the physical inventory and the control maintained in the management system. To perform its calculation, it is necessary to count all items in stock, recording when the information matches the total in the system.

It is important to highlight that this is not a rigid indicator, as it is acceptable to notice a certain level of disagreement regarding orders returned or sent in incorrect quantities. The most important thing is to identify the source of the errors in order to make the necessary corrections and avoid their repetition.

6. Material Shortage

The material shortage helps to understand the relationship between the sales department and the storage area. Let’s say that, due to the lack of available information or a communication failure, more units of a product were sold than the ones which were available in stock.

This is an occurrence that results in problems with meeting delivery deadlines and negatively affects the relationship with customers. The formula for calculation is quite simple: just divide the amount of missing items by the total available products. The number obtained is multiplied by 100 to generate the percentage of failures.

7. Inventory losses
Even with various preventive measures and equipment for handling products, the items still break down inside the warehouse. Damaged items cannot be sold because they compromise the fulfillment of orders.

When this happens, the company assumes the costs of that loss when it is not possible to recover the damages. The elevation of this indicator can also be caused by losses and thefts during storage. Therefore, it is important to identify the causes to mitigate this situation.

Achieving efficient inventory management is a challenge for companies in all segments. However, the analysis of KPIs represents a solution for those looking to correct problems, such as order processing errors and delivery delays. After all, all of these elements affect the customer’s shopping experience.

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The VMI Portal is a portal of news and information on systems of collaboration between suppliers and customers, which is growing continuously. The idea is to promote and disseminate the concepts of Supply Chain Management (SCM) and Vendor Managed Inventory (VMI), among other topics.

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