![]() ![]() For example, a good ITR for retailers selling perishable goods like flowers or produce is usually higher (meaning that you sell and replenish your merchandise more often to avoid its spoilage) and can be 10+ compared to, say, businesses selling heavy machinery or luxury items where ITR can be 1 or 2. An optimal ITR value greatly depends on what you sell. How to approach it? Typically, companies strive for ITR growth as it’s a sign of higher sales and increased revenue, but a too high ITR value can sometimes mean that you don’t have enough inventory to satisfy customer demand and have a risk of stockouts. Too much stock held isn’t good because it ties up cash and increases overhead and holding costs. In general, a high ITR value is a sign of strong sales and healthy cash flow, while a low ITR can indicate low sales or excessive inventory. What does it show? The inventory turnover ratio basically shows how fast – or how efficiently – you sell your stock and turn it into revenue. We'll get back to this metric and break it down in more detail further on.Īverage Inventory = (Beginning inventory + Ending inventory) : 2 To calculate average inventory, you have to add inventory value at the beginning of the period and inventory value at the end of the period and divide the sum by two. To calculate COGS, you have to add inventory value at the beginning of the period to total purchases during the period and subtract inventory value at the end of the period.ĬOGS = Beginning inventory + Purchases – Ending inventory If you use the first formula, you’ll have to find COGS and average inventory first. Inventory Turnover = Number of units sold / Average number of units in stock You can also measure the turnover ratio in units, not in money values. To calculate it, divide the cost of goods sold (COGS) by the average inventory value. Inventory turnover ratio (also known as inventory turnover rate, stock turn, or inventory turn) is the number of times a company sells and replenishes its stock over a specific period (usually one year). The inventory-related KPIs we describe below can help you evaluate your sales processes and stock performance. Sales KPIs: inventory turnover ratio, days sales in inventory, sell-through rate, and others We’ll also suggest a few tips on how to approach inventory-related business intelligence. We can’t describe all the inventory KPIs that exist out there, so we’ll focus on the most popular and actionable ones. In our overview, we’ll stick to the generally accepted categorization that divides inventory KPIs into 3 groups: ![]() Setting and monitoring inventory KPIs must be an integral part of your overall inventory management activities if you operate in such industries as retail, eCommerce, B2B wholesale, manufacturing, and so on. Analyzing inventory KPIs and their dynamics helps decision-makers optimize stock-related processes, reduce costs, and ultimately improve the business’s bottom line. Tracking these KPIs gives inventory managers better visibility of the supply chain and an understanding of the market in general. They also highlight other important connected aspects like customer demand and satisfaction, company expenses, and so on. Inventory KPIs are quantifiable metrics that measure the performance of inventory-related activities such as procurement, sales, order processing, warehousing operations, etc. So today we look at the main stock-related KPIs that can show you the actual state of affairs, highlight areas for improvement, and help you choose the best course of action. It’s evident that to manage your inventory (as well as other business aspects) effectively, you have to measure and analyze the processes inside your company. Inventory management always involves deciding on further actions: Which items should you replenish? When? In what quantity? To answer these and other questions, you can rely on your gut feeling, ask the astrologist – or scrutinize the related metrics and make your decisions based on data. ![]()
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