8 Critical Inventory Metrics That Every Parts Department Should Monitor
What are eight important Inventory Metrics every parts department should monitor?
Tracking certain metrics is essential to accurately assess your inventory performance and make changes to the management process. While certain indicators should always be monitored, others are more pertinent to current objectives. Other departments may need access to analyze and report on certain metrics as well.
These metrics are essential for getting started
Inventory turnover indicates how often your SKUs were sold and then replaced. This ratio will give you insight into your parts flow so that you can make informed ordering decisions.
- Inventory Turnover = COGS / Average Inventory Value
- Average inventory value equals (Beginning Inventory + Ending Inventory) / 2
- The faster your inventory moves, the higher this ratio will be.
Days on hand make a difference too – more days mean more cash flow!
- Another key metric is days of availability, which indicates how long an item remains available (or takes to sell).
- The faster your turnaround time is, the quicker you can finish tasks and free up capital for other activities.
- Days On Hand =365 / Inventory Turnover
- This ratio shows how quickly an item sells within its intended lifespan.
- This formula can be changed to account for weeks and months by replacing 52 (for weeks) with 365.
- This metric gives your parts department insight into the efficiency of their internal supply chain.
- Sell-Through rate = (Units Sold/Units Received) x 100
Return on Investment (ROI).
The return on an equity investment (ROI) measures how much you have made. It can be calculated as:
- ROI = ((Profits – Cost Of Inventory) / Cost Of Inventory) x 100
- Your chances for higher gains are greater if your percentage is higher.
What about stock outs?
These costs could add up quickly if stock levels remain low, so be sure to measure them carefully!
- This metric indicates how much it would cost to sell an item if you ran out of inventory.
- Cost of Being Out of Stock = Average Units Sold per Day x Profit Per Unit
- The more valuable an item, the greater its need for keeping in stock.
Great Order Rate
- A perfect order ratio can help measure customer satisfaction. T measures the percentage of orders that were delivered on time without any issues such as damaged or inaccurate records, delays, or other problems.
- Perfect Order Rate = 100% Order Delivery on Time + 100% Completed Orders with Correct Records * 100
- The higher the percentage final, the better.
- Inventory shrinkage refers to inventory that has been recorded but is not physically present on-site. This could be due to improper record keeping, internal theft or other causes.
- Inventory shrinkage = Ending Inventory – Value of Physical Inventory
Inventory Carrying Costs
Inventory management involves costs. You’ll have to cover storage space, insurance and labor, plus you must factor in obsolescence as well.